Aerodynamic Trading, Constance M Brown 1995 OCR

AERODYNAMIC TRADING

Copyright© 1995 by Constance M. Brown All rights reserved, including the right of reproduction in whole or in part in any form.

First Edition: December 1995 Manufactured in the United States of America

For information, address the publishers: New Classics Library Post Office Box 1618 Gainesville, Georgia 30503 USA _

Library of Congress Catalog Card Number: 95-74771 ISBN: 0-932750-42-7

ACKNOWLEDGMENTS A first-time author does not suddenly dig deep and find the polished skills to write clearly and concisely. The flow of ideas, pace and timing is the behind-the-scene talents of the editor. Sherm Eagan, President of

Connecticut Yankee International, 9 Mott Avenue, Suite 107, Norwalk,

CT 06850, was the editor of this book. He is a skilled writer and highly

regarded Executive Producer for television whose talents have been recognized by the industry with two Emmy Awards. This book would

not have been presentable for publication without his help, hours of work, patience, and supporting friendship. This book has been dedicated to Dennis Meyers. Denny was a close friend and influential mentor. He was an exceptional S&P trader and giving man. For a year, we spent hours on the phone debating and clarifying the concepts offered in this book. When repressed memories became my writing obstacles, it was Denny who pulled and prodded the deep comers of my mind until the facts became clear enough for me to continue.

Denny taught me much about the markets and life itself.

Much of his enthusiasm for living life to the fullest is expressed within the pages that follow. While he read early drafts� I regret he never had an opportunity to see the finished project. I am most grateful to Denny's former chief trader, Ed DiMaso, for stepping forward to critique the final draft. Paige Eagan actually planted the early seeds in my mind as our open discussions explored the more difficult concepts for one trained in the sciences. She helped with research and was assisted by Mora Ritz at the Darien library. To both these ladies I am very grateful. The labori ous production phase of type flow, page design and proofing was handled by Jane Estes and Sally Webb. Stephanie White contributed many hours producing a first draft from which Sherm Eagan could begin to apply his editing and wordsmithing skills. Pam Kimmons was the graphic artist who contributed to the intricate charts and graphic rendition of the plane. Finally, four individuals in particular stand out in my mind as influ ential contributors. Every project of this magnitude eventually reaches a juncture that will ultimately mean the difference between continua tion or stagnation. Both Dave A llman and Robert Folsom championed the first outlines with unconditional support. They were especially sup portive of the thrust of this book when so many wanted a technical manual. In addition, Joel Berman injected a charge that reignited the project at a critical phase. Their early enthusiasm was joined by the most crucial supportcr... thc individual who gave the go-ahead on pub-

CONTENTS

Foreword. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 I.

The Preparation: Adopting The Beginner 's Mindset. . . . 5

II.

The Framework for Extraordinary Performance in Athletics or Trading . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Competition and Winning . . . . . . . . . . . . . . . . . . . . . . 13 The Three Selves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 Goal Setting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 Motivation and Self-Improvement . . . . . . . . . . . . . . . 61 Psychological Tactics . . . . . . . . . . . . . . . . . . . . . . . 77 .

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III. Inner Aerodynamics: Enhanced Trading Skills through Professional and Olympic Coaching Techniques . . . . . . 83 Distortions of Reality and Ability . . . . . . . . . . . . . . . 105 Expectations and Other Mind Traps . . . . . . . . . . . . . 115 Focusing/Concentration . . . .. . . . . .. . . . . . . . 121 Centering . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 9 Intuition . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . 147 Visualization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 163 Confidence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 169 Conscious Breathing . . . . . . . . . . . . . . . . . . . . . . . . 181 Assertiveness vs Aggression . . . . . . . . . . . . . . . . . . 187 Courage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 5 Aspects of a Successful, Professional Trader: A Self-Test . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 199 .

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IV.

The Dark Side of Trading: The Obstacles, Addictions, and Inner Anxieties ... 205 Emotions . . . .... .. .. 209 Stress, Compulsions, and Addiction . 221 Ego and Self-Judgments .. . .. .. 229 Fear of Failure .. .. ... ... 237 Fear of Success . .. . . . .. 243 Integrity .. . . 24 7 Slumps . . .. . 263 Fatigue, Denial, Injury/Illness, and Burnout 267 .

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V. The Olympian 's Mindset Applied to Trading: A Real-Time Demonstration .. . .. . .

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273

VI. Conclusion: Why Struggle for The Top if it Can Only Be Temporary? ... .. . ... . ... . 301 .

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AER ODYNAMIC TRADING 6

Part I: The Preparation

7

It was 6 AM when we began to collect beside one of the fastest swimming pools in the world for an international train ing clinic. We had arrived from Australia, Canada, Great Brit ain, and the United States. Nearly all of us would compete in our respective countries ' Olympic Trials the following Spring. Some would meet again at the Games next summer. The bleach ers were buzzing as one of the top coaches in the world stepped out on the deck. He had trained several Olympic Champions. Expectations were high that he would pass on his secrets for success to the new group of young hopefuls sitting before him today. The opening remarks were expected to be motivational, uplifting to the demands ahead, and cognizant of the talent which had just assembled. Sounds of excitement were quickly re placed with silence as the coach stepped forward to speak. A successful swimmer went to a Zen master and announced he had come to learn all about Zen. The master invited the young man to sit down and have tea. As the master poured the tea, it overflowed. The young man shouted, ''It's spilling, it's spilling!" To which the master replied, "Precisely...you came with a full cup. Your cup is already spilling over, so how can I give you anything? Unless you come with empti ness, I can give you nothing." The coach then walked away out of sight. He left behind a stunned and confused group of swimmers on the bleachers that were not permitted to even enter the water for the first workout

AERODYNAMIC TRADING 8

until we had settled down and begun to ponder what he had just said. In hindsight, two swimmers that took his opening comments more seriously than most of us are the same two swimmers that became Olympic medalists the following year. Performance excellence in athletics and trading markets share common roots. It is not difficult to offer examples that can easily demonstrate the similarities: the drive to win, the accom panying anxiety to produce, the stress associated with past fail ures, the belief that you have to sustain a consistent degree of performance excellence. It should not be surprising therefore, that much of what is taught to the high performance athlete can be of benefit to the trader. Once the trader has mastered the technical skills, for the athlete the physical, the difference in improving one's performance becomes psychological. In a nut shell, it all comes down to how well we can learn to control our inner distractions and fears. As our experience grows, so do the obstacles we put in front of ourselves. Imagine a market that you believe has topped. A position is established in antici pation of a decline. However, you are proven wrong when the market continues to advance. A second attempt is made to es tablish a short position. Again you are stopped out. After hav ing lost money on your prior short positions, fear immobilizes you from selling the third time. Insult to injury occurs when that third short position you just failed to establish then turns into one of the biggest winners for the current year. The anxi ety to catch up forces you to enter trades that you otherwise may not have taken, causing a compounding loss and spiral decline. I know the pattern. I make the same mistakes. Fortu nately, my early coaching has provided the foundation needed to break the spiral quickly and return to a more profitable course when this happens. The journey toward performance excellence begins when you empty your mind of all the preconceived notions and ideals you have accumulated that clutter your mind. If you enter these

Part I: The Preparation

9

pages with a full mind, there will be littleI can offer you. East ern philosophies, specifically the precepts of Taoism, express entering a mindset called the Beginner's Mind. Renouncing our restrictive beliefs opens our potential to unlimited bound aries. Keep an open mind, the beginner's mind, and I will share with you techniques and approaches given to me by interna tional coaches that extend beyond sport and our trading activi ties. Untapped inner strength and control for performance ex cellence can be at your command.


PART II The Framework for Extraordinary Performance in Ath letics or Trading

13

Competition and Winning

Sport is a perfect metaphor for trading. It has the same ups and downs, the jubilation and the emptiness, the anger and the exhilaration, the chaos and the calm, the success and the fail ure. Our competitive society has a multitude of competitive systems that form the obstacles that hinder our development and diminish our potential. It is important to identify these walls and break them down before any real progress can be made. Media slogans such as "the thrill of victory, the agony of defeat" instill performance pressures early in our childhood. A young child letting a baseball pass through his legs in a little league game is met with looks of failure from his young team mates and is then often met with harsh words from a coach who may damage his confidence, bruise his self-image, and instill in him a fear of failure. In 1908, Baron Pierre de Coubertin declared that "the goal of the Olympic Games is not winning but taking part." This is a goal that has never been achieved, nor will it. We have strayed so far from this goal that now our nationalistic desires to win have led professionals from all nations to become reinstated as amateurs. I was once barred from swimming in a major inter national meet as a protest of professionalism was explored and a question of eligibility was evaluated. Back then it was just a competitive tactic. It was a single trump card that could be played once against any individual. The issue was resolved in my favor, but not in time to swim in that particular competition. The tactics and behind-the-scene maneuvers to gain a competi tive edge would sometimes go beyond all reason. There is a

AERODYNAMIC 'TRADING 14

favorite story in the Olympic swimming community about the 1972 Games when Soviet swimmers were given swim suits dipped in an adhesive that molded the suits to their bodies. The team members put on their suits with only the knowledge that tests showed fractions of a second could be removed from their sprint times by simply reducing the friction of their suits. They had not been told that there was no solvent to easily take the suits off afterwards. As the suits had been dipped in the adhe sive, most had to endure the pain of skin being tom off with their swim suits from the most sensitive parts of their bodies, women and men alike. As you squirm and become uneasy at the thought of how painful that must have been, it is natural to first think how could anyone go through such an ordeal just to win? To some extent we are all being subjected to similar competitive pressures. Stop to think for just a moment. As a professional trader, you have recently fallen into a trading slump with your end-of-month P/L statement only three days away. You are all too aware that your firm has been making cutbacks throughout the organiza tion. On a personal level, suppressed to the back ofyour mind is the next mortgage payment and the knowledge that the eq uity in your home no longer exists because of tumbling real estate prices in your area. This job means retaining your stan dard of living and self-image. Now with the proper backdrop and the stage set, you might ask to what extreme measure would you be willing to go, if it promised to be the single factor to change your current monthly P/L from the red column to a healthy positive return? Suddenly the swim suit example is not as painful to imagine. Athletic pressures spill over into all other endeavors of per formance and especially those in the corporate and business environment. Professional athletes and professional traders both become the statistics from which new business flourishes. We become endorsements, performance track records, or walking billboards for a corporate sponsor, employer, or portfolio iden-

Competition and VVinning 15

tity. Big time athletics is serious business, trading is also seri ous business, and both disregard the well-being and health of the individual. All that matters is the score. It is the result, "Who won?" that has become everything. Such an approach is directly responsible for creating a number of nonproductive, dysfunctional behavior patterns which high performance ath letes are coached to recognize and take control of in order to allow further performance development. These behavior pat terns, characterized by inner struggles and insecurities, all con tribute to a background of negative noise. The noise causes a loss of concentration and loss of confidence which negatively impacts our ability Such behavior patterns are common in ath letes. I have since learned that they are equally common traits for traders as well. Consider the following examples:

)

l

Our self-worth can be diminished because of a poor performance which failed to meet our expectations. This leads to the loss of our inner balance. We judge our self-worth solely on the outcome of our perfor mance in sport, or in direct proportion to our current profit/loss bottom line. Performance in sport applies to the weekend golf or tennis enthusiast. Have you ever noticed how your golf game reflects your recent trading perfonnance, and vice versa? The better your trading performance, the better your golf or tennis game. These activities of sports and trading will be effortless or disastrous at the same time. A great deal of attention will be given to help you understand why this phenomenon occurs. Not understanding why these activities are linked can lead to a very dangerous and incorrect assumption. Athletes and traders both frequently treat their goals as something which must be conquered. thereby ex pending valuable energy in a useless endeavor.


Unrealistic performance expectations lead to frustra tion and disappointment.

We tend to struggle for external recognition rather than

internal satisfaction.

We place demands on ourselves for perfection in ev ery task or trade. Perfection assumes there will be a point of completion, an ending, a point at which some thing cannot be imJ?roved or bettered in any way with time or technique.l However, perfection is static and

) �arkets _

cannot apply to a personal skill in sport or trading be cause ability always evolves and changes

will always evolve and �hange so �ading techniques

ancfanalYflcfilethodologies that seem perfect today

will not be so in the future. (Perfection doesn't apply

in relation to markets because there is no finish line

and no final destination for our trading ability) Our

trading experiences today will help build our �esources

(

and skills for tomorrow's trading session. The pro gression is simply a journey, and the first steps of the journey are better viewed as·a transition to excellence.

)

It is too easy to blame others when things go wrong. By blaming others we relinquish control and are no longer accountable for our own actions. As a result, we cannot change or improve them. It becomes a vi cious cycle which is difficult to break.

Traders, like athletes, arefragile. Our worst critic is frequently ourselves, unmerciful and unforgiving of failures, setbacks, and mistakes.

None of these performance crippling similarities between athletes and traders have anv relation to their ootential ohvsical

Competition and Winning 17

or technical skills. However, psychological barriers are more restrictive than lack of technical skill for traders or physical skill for athletes. When the technical/physical barriers are down at the same time that the self-imposed unconscious obstacles are down, or what Don Gambril, a former Head Coach of the U.S. Olympic Swim Team, described as "taking control of the inner demons of the spirit which hinder your concentration," the impossible then becomes the reality. In sport, the goal is to achieve a harmony and balance be tween the physical and spirit. Absolute balance is rare, and in my own.swimming career, I recall only three times when it oc curred. alance is experienced wllen there is no fear of past failures or of future consequence It is a time of complete and total concentration on the present when you can be totally oblivi· ·ous to._any arid -aird:lstractions:,:crnone of these rare occasions of total balance, my most treAsured gold medal was won in Tokyo. It does not represent the memories of a past victory but what can be achieved now, today, when inner balance is at tained Wben absolute inner balance occurs, exertion becomes effortless, the mind, spirit and body are inseparable, and on that day, at that moment, no one can beat you. No person or mar ket ere becomes an effortless flow, and you can be taught how to tap into this reservoir. You push beyond the envelope of self-imposed limitations and tap an unlimited universe of energy. Roger Bannister, in his book Breaking the Four-Minute Mile, describes this balance like few have been able to do: "The earth seemed to move with me ... a fresh rhythm entered my body. No longer conscious of my movement I discovered a new unity with nature ... a new source of power...a source I never knew existed.'' Miler Roger Bannister will always be known as the man who broke through the four-minute barrier, but you may not be aware that the sub-four-minute mile was then re peated by no fewer than forty-five runners within the next eigh teen months. Do you think all these athletes improved their running technique within that short period of time? No way.

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Unrealistic performance expectations lead to frustra tion and disappointment. We tend to struggle for external recognition rather than internal satisfaction. We place demands on ourselves for perfection in ev ery task or trade. Perfection assumes there will be a

point of completion, an ending, a point at which some thing cannot be im�roved or bettered in any way with

time or technique.l However, perfection is static and

cannot apply to a personal skill in sport or trading be cause ability always evolves and changes

) �arkets

_

will always evolve and change s�_�ading techniques

and anal}rticmethodologies that seem perfect today will not be so in the future. CPerfection doesn't apply

in relation to markets because there is no finish line

and no final destination for our trading ability) Our

trading experiences today will help build our !esources

(

and skills for tomorrow's trading session. The pro gression is simply a journey, and the first steps of the

journey are better viewe
)

It is too easy to blame others when things go wrong. By blaming others we relinquish control and are no longer accountable for our own actions. As a result, we cannot change or improve them. It becomes a vi cious cycle which is difficult to break.

Traders, like athletes, arefragile. Our worst critic is frequently ourselves, unmerciful and unforgiving of failures, setbacks, and mistakes. None of these performance crippling similarities between

athletes and traders have anv relation to their potential physical

Competition and "Winning 17

or technical skills. However, psychological barriers are more restrictive than lack of technical skill for traders or physical skill for athletes. When the technical/physical barriers are down at the same time that the self-imposed unconscious obstacles are down, or what Don Gambril, a former Head Coach of the U.S. Olympic Swim Team, described as "taking control of the inner demons of the spirit which hinder your concentration," the impossible then becomes the reality. In sport, the goal is to achieve a harmony and balance be tween the physical and spirit. Absolute balance is rare, and in my own,.gwimming career, I recall only three times when it oc curred. Balance is experienced when there is no fear of past failures or of future consequence It is a time of complete and total concentration on the present when you can be totally oblivi none of these rare occasions ous to"ari y andalld is-r i actioris.)tf of total balance, my most tre�sured gold medal was won in Tokyo. It does not represent the memories of a past victory but what can be achieved now, today, when inner balance is at tained When absolute inner balance occurs, exertion becomes effortless, the mind, spirit and body are inseparable, and on that day, at that moment, no one can beat you. No person or mar ket. ere becomes an effortless flow, and you can be taught how to tap into this reservoir. You push beyond the envelope of self-imposed limitations and tap an unlimited universe of energy. Roger Bannister, in his book Breaking the Four-Minute Mile, describes this balance like few have been able to do: "The earth seemed to move with me ... a fresh rhythm entered my body. No longer conscious of my movement I discovered a new unity with nature...a new source of power...a source I never knew existed." Miler Roger Bannister will always be known as the man who broke through the four-minute barrier, but you may not be aware that the sub-four-minute mile was then re peated by no fewer than forty-five runners within the next eigh

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teen months. Do you think all these athletes improved their running technique within that short period of time? No way.


Once the barrier was broken, they changed their attitude from "it can't be done," to one of believing "it can be done." The psychological barrier had been removed and as a result forty five runners broke through to a new level of personal perfor mance excellence. Inner and outer goals require specific training techniques and preparation to attain balance on demand. A balanced trader is a synonym for a balanced athlete. Both have limited cerebral drag and are inwardly aerodynamic. Both will experience a similar level of achievement excellence. Balanced traders/athletes enjoy the following characteristics: • • •

•

•

•

•

•

•

They are individualistic.

They have the courage to risk failure.

They learn and grow from past setbacks and mis takes.

They possess a multidimensional approach to competition.

They see their competitors as partners who can facilitate improvement in their own performance level.

They focus on how the game is played. (In trad ing this is the process itself, as opposed to the outcome or P/L bottom line. The score board is always a time horizon of the future, trade within the present. We'll go into this later in far more detail. ) They use the game to gain a greater self-realiza tion.

They train their minds to see through the com plexity of inner trappings.

They blend with forces so as not to create a counterforce. They work throuah fatigue by re-

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Comp_etition and Winni

·

19

·.,...._...

.

!axing, rather than focusing on it and aggravat ing the problem by adding more stress. •

•

•

•

They know their vulnerabilities and train to strengthen them. They understand that performance is a roller coaster and have the patience to ride the ups and downs. They visualize, allowing dreams to become pos sibilities and reality. They enjoy their sport or market environment for the pleasure it gives.

No one will ever be balanced and aligned at all times. My colleagues at Elliott WaveInternational will be the first to agree that I am far from being a calm, "in-control-at-all-times" kind of person. Judging from acquaintances and friends who trade as a profession, we all tend to be passionate, strong willed and display emotional swings outside the trading room - even in the trading room (which really should never happen). I remem ber flinging a telephone across a room as the phone system went down for the ''umpteenth" time. (Fortunately it was thrown in my private office, and others were not at risk. It was also only one of four phones tied to independent phone services soI was not jeopardizing my trading link.) When you do lose bal ance, and we all do sometimes, know that you must gain the ability to return to center and regrasp the characteristics listed above. Competition among traders on a trading floor is as intense as any high stakes athletic event. More money rides on many trades than the difference between winning and losing at Wimbledon, The Masters, or the Super Bowl. Other traders can seem threatening and may create a sense of fear that you will be judged inferior to them, be it through your P/L perfor-


mance, trading activity, or intellectual methodology. This envi ronment of competition breeds a killer instinct among many traders. Frequently the more insecure the trader, the stronger will be their killer instinct. This is not the path to success. True strength, like water, blends with other forces. Practitioners of the martial art aikido actually defeat their challenger by blend ing with the force of their opponent. e opponent in this case is your own �Jro transcend fear requires preparation. Every trader knows fear; the difference is how you live with it and how you prepare and train for it. Fear will always be with you. This book will offer specific techniques that will help you learn how to work with your individual fears and use them to your advantage. Philosopher Alan Watts states, "The other side of every fear is freedom." In Part III, titled "Inner Aerodynamics: Enhanced Trading Skills Through Professional and Olympic Coaching Techniques,n we will discuss which specific tech niques to use to help us calm our inner anxieties and relinquish our fears. ['!he � about competitive environments is learning to �ith your com etitors a�d to become �e that they will help you rise to the occasio Appreciate that they contrib ute to attaining your highest level of ability, rather than focus ing on who was right or wrong, or who won or lost. For in stance, the contrarian nature of trading with the Elliott Wave Principle presents some unique challenges and opportunities. When the market completes a rising diagonal triangle pattern disguised as a bullish breakout formation above a major resis tance level, you will experience other traders squirming in their chairs and hear them feverishly accessing their computers to see why you are selling the market when they are buying it. Many will decide that you are marching to your own funeral with outward glee. For them it is clearly a bullish breakout formation. Don't try to ignore their activity; this will only con tribute to your own level of stress. Accept it, let their hubbub

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Competition and Winning 21

HONG KONG DAILY___ .

............., ..........................................................u......... .,.............. ..........................u.............u................

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Market ut?9 lsreako 64 9 L�I

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Tnangle

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This daily chart of Hong Kong's Hang Sang Index illustrates the fatal error in judgment a buyer could make by assuming the mar ket was breaking out above 6400 to continue the prior rally. The

buyer caught long near If the buyer decided to be

market rarely offers a gracious exit for a the top of a diagonal triangle pattern.

patient, losses would have continued (lower insert).


of activity flow through you, then smile to yourself and perhaps sell some more ! You are selling into the high of a fifth wave diagonal triangle which suggests a market top to a larger rally. If you are wrong, there will most likely be a gracious level to cover the position with a marginal profit. As for the traders who were long the market, they would be trapped. The weak ness is theirs, not yours. They view other traders as their com petitors, as opponents, which must be crushed or annihilated in order to give themselves the illusion that they are better. This activity is only wasted energy and contributes to the clatter of internal noise, which can break your concentration. Much can be learned from a former Olympic Champion who is regarded as a Champions' Champion, Jesse Owens. In the 1936 Olympic Games in Berlin, which had been staged by Adolf Hitler to demonstrate to the world the superiority of the Ger man race, a story of incredible partnership is told. Jesse Owens, a black athlete from the United States, was the world record holder in the longjump. Owens was on the edge of elimination after having fouled his first two jump attempts. Germany's top jumper, Lutz Long, rushed to his side and suggested making a technical change to Owens' approach. Owens followed Long's advice and qualified on the next jump for the finals. In the finals they continued to push one another. It was on Owens' last jump that he set the Olympic record of 1936. Film footage of the event then shows Lutz Long holding Owens' hand high in front of thousands of cheering spectators. Both walked arm in-ann around the giant Berlin stadium, astonishing the huge audience. "It took a lot of courage for Long to befriend me in front of Hitler," Owens was later quoted.1 Elite athletes work as partners and blend to attain optimal performance. The Head Trader who motivates his brokers to 1

Olympic Controversies,

Watts.

l

by Harvey Frommer, published by Franklin

Competition and "Winning 23

Reprinted by permission of UPl/Bettmann

Lutz Long and Jesse Owens

1936 Olympic Games, Berlin


focus on the annihilation of an "opposing" desk, is in turn set ting up the very environment which will yield a lower return. A general theme which many top coaches express about fellow competitors is to use the level of their excellence as a key to self-improvement. Don't be hindered through intimidation; extend your own boundaries. If the trader next to you is a whiz on stop placement, ask for his advice. Sometimes when you ask for help, your questions will be met with an air of, ''Well, don't you know that?" The other trader has used your request for help to fuel his own ego trip by putting you down. Recognize this response for what it is. Don't withdraw with feelings of inferiority. You have in some way been intimidating this trader, and your request for help has ac tually exposed his vulnerability. You can't lose by asking. By trying to blend with your opponent, you will either gain a part of the skill that you perceived earlier to be threatening, or you reveal that he is vulnerable. Either way, you win. You im proved your own skill level, or you diminished a source of in timidation that distracted from your own trading. The other trader may have a strong technical skill, but lack the mindset to fully use it. That trader may ultimately defeat himself from within. As confidence in your ability grows and your skills improve, you will then experience a new challenge: mastering the com plexities of winning itself. The outcome of any trade, any point in a game, is important but not an end in itself. The scoreboard is one measure of our performance throughout the "event." The trap is developing an obsessive need to win every trade or point. Let's get real: you aren't going to be right with every trade; that's why strong money management skills are a vital aspect of trading. You can't al low a loss to influence or impact your performance on the nbxt trade; that unnecessarily compounds the element of risk. Once that need becomes overpowering, you lose the joy of the pro-

Competition and -Winning 25

cess and the satisfaction that comes with a high level of perfor mance. As an example, it is entirely possible to win the For mula One World Championship by consistent high performance, but never finishing first in any single Grand Prix race Let go i. of the obsessive desire to produce; be in the moment; focus on the flow and joy that comes with performance excellence) For the trader, there is a feeling of exhilaration when we are in close synchronization with the flow and rhythm of a market. During these periods we are totally focused on the current mo ment of activity on our computer screens. There are no thoughts of our commute to work that morning, or errands we need run after the markets close, and no concern about how the outcome of a current trade will impact our bottom line. Attention to the now with total immersion in the details of the present will lead to performance excellence and a consistently rising equity curve. Focusing on the present moment without distractions is the real key. Disregard conflicting thoughts creeping into your con sciousness and tune out that familiar song playing on the radio of your mind. You know the song, the words go something like this: "I-could-a, would-a, should-a, what-if-I-had-a." We'll discuss how to work with these distracting thoughts at a later time. There will be specific activities defined to help you develop skills for dealing with such energy draining mind gremlins. For now, just begin to recognize such thoughts for what they are: distractions. ·"


27

The Three Selves You cannot transcend what you do not know. To go beyond yourself, you must know yourself.

-Sri Nisargadatta Majaraj I

From Luke Skywalker to the ancient Lamas ofIndia, people have tried to understand and tap a source of strength and en ergy greater than mere physical power. They have been seek ing "The Force." Roger Bannister 's description of tapping into "a new source of power...a source I never knew existed" when he broke the four-minute barrier has been expressed by other athletes who surpassed old boundaries. The source of inner strength needed to excel to new levels of extraordinary perfor mance has to originate from more than an extra bowl of Wheaties. Our needs, wants, and goals are complex because each of us is made up of three distinct individual beings. Varying cul tures, religions, and even medicines all have different terms, yet similar definitions, for our three inner selves: our uncon scious self, our conscious self, and soul. (Stick with me on this one, I promise not to jump off the "deep-end" on you.) Some of the originating sources where we find references to our three selves date much earlier than religions of the modern 1

From the book Sacred Journey of the Peaceful Warrior, 0 1991 by

Dan Millman. Reprinted by permission of H . J. Kramer. P.<>. Hox Tiburon. CA. All rights reserved.

IOH2.


world that are relatively new. Mohammedanism is about 1500 years old, Christianity is 2000 years old, Judaism is much older than that, and the roots of Buddhism began around 500 BC. It might be said that our western civilization is more advanced in materialistic comforts than the Asian civilization. The Asian cultures are far more advanced than we are spiritually. (OK, what does this have to do with trading? It becomes the very foundation of our ability to achieve excellence. So hang in there.) These ancient spiritual cultures, that are still powerful forces in our modern world, have a common belief that there is a com mon thread connecting all peoples. It is a kind of universal energy that individuals can tap- "The Force." Two widely distant peoples share common beliefs about a universal Life Force; the Native American Tribes of North America and the Tibetan Buddhists. They share a common philosophy and re markably similar prophecies. They both believe the individual is able to accomplish seemingly impossible feats by tapping into this universal energy. A Cherokee woman, Dhyani Y wahoo, is a modem-day Buddhist and member of the Etowah Cherokee nation. Her story tells of how her family has spiritual ties to the holy man, Padmasambhava, who founded Tibetan Buddhism thousands of years ago. Recent meetings between Native American leaders and the 14th Dalai Lama of Tibet re vealed their prophecies that originated many, many thousands of years ago are nearly identical. What is even more amazing is that many of the details of those prophecies were closely guarded secrets, never before revealed outside the monasteries or tribal councils. When you really think about it, such similarities shared between such diverse peoples are astonishing and lend an ele ment of truth to these people's individual common beliefs. As when two distant research institutions arrive at the same scien tific conclusion independently, both works receive greater cre dence.

The Three Selves 29

In the November 1986 issue of the magazine Discover, I came across the story of the Superstrings Theory, a theory that offers a scientific and physical basis for understanding how we are all connected and suggests that there is indeed a universal energy that can be tapped. The Superstrings Theory was devel oped in 1984, primarily by physicists John Schwartz and Michael Green, after more than a decade of work. This theory so capti vated the scientific community it was quickly dubbed TOE, or Theory of Everything. In brief, the Superstrings Theory sup ports the work of Albert Einstein by showing that matter and energy are interchangeable, and ultimately, blended into a single unified field. In other words, all matter and all energy are linked. The theorists describe matter as consisting of tiny primordial lengths and loops of something like strings, and they claim en ergy arises from the actions and interactions among these strings. These so-called superstrings connect everything to everything and apparently exist in ten dimensions: our familiar four of length, width, height, and time, plus others that cannot be ob served by normal human senses. These additional dimensions operate only on the Planck scale, which in size is to the atom as the atom is to the Solar System. As Discover put it, "The theory has turned physicists into mathematicians, and mathematicians into physicists, and the universe into an entity in which all mat ter and energy, all forces, all people, planets, stars, cats, dogs, quasars, atoms, automobiles, and everything else... are the re sult of the actions and interactions of these infmitesimal strings." The scientific community had finally stumbled upon what the Tibetan Buddhists and Native Americans have believed for thousands of years, that there is a universal connection or con sciousness. Steven Spielberg used entertainment to explore the concept in The Star Wars Trilogy, as Yoda and Obi-Wan Ben Kenobi train Luke Skywalker to feel and use "The Force."' The movies became widely popular. It clearly struck an inner nerve that transcended mere entertainment in a spiritually-starved Western Society.


Performance excellence is achieved through an inner bal ance and understanding of what makes us who we are as indi viduals. With minor variations, numerous ancient cultures be lieve in

the three selves. It is found in so many diverse and

ancient cultures that there must be an element of truth within it to perpetuate its continuance over thousands of years. Although science has not specifically confirmed the concept, several au thors in the scientific community have introduced explanations of the human brain using several terms and concepts that can be synonyms for the

three selves: Id, Ego, Super-Ego. Authors

also discuss our Left-Brained and Right-Brained attributes. The work of Dr. Paul Maclean in the '40s and '5 0s introduced the concept of the Triune B rain. In his work the human brain com prises three components: the Limbic System, associated with emotions; the Reptilian Comp lex, the source of our "fight o r flight" instincts (Pani c! "Get me out of this trade!"); and the Neocortex, the seat of our technical and rational mind. An excellent description of the

three selves is offered in the

writings of former World Trampoline Champion, Dan Millman. In his book, Sacred Journey ofthe Peaceful

Warrior 2, Dan de

fines the three selves as the Basic Self, the Conscious Self, and the Higher Self. They each have their own distinct characteris tics, wants, needs, and desires. Inner balance is experienced when the three selves have been satisfied equally, and their needs attended to, or at least acknowledged. Let's take a more de tailed look at each of the three selves as Dan Millman defines them. The Basic Self can be viewed as the child within us- bo ld with curiosity until the slightest hint of dange r or unfamiliarity becomes present. The boldness is then replaced with a with drawn and shy being until the perceived danger has past.

Sacred Journey of the Peaceful Warrior.

0 1991 by Dan Millman. Reprinted by permission of H. J. Kramer, P.O. Box 1082. 2

From the book

Tihuron. CA. All rights reserved.

The Three Selves 31

Through the eyes of our Basic Self we experience all emotions. The Basic Self has a storehouse of endless energy that fuels unharnessed emotions. It is motivated by a primitive impulse to survive, seek shelter from discomfort, to seek pleasure, avoid pain, and to have fun. The Basic Self is unrefined by culture, rules, or logic. There is no perceived higher purpose or refined beauty, only good feelings and bad feelings. The Basic Self demands attention to its own agenda of wants and desires. It can be characterized by an extroverted desire to explore and have fun, yet rapidly withdraws and becomes insecure when it gets in trouble by facing anything that is unfamiliar, and then . seeks guidance from some other source. It becomes the source of our need for reassurance, and it is capable of childlike tem

per-tantrums to bring attention to its demands. When we are in front of a trading screen, it is the Basic Self that expresses feel ings of excitement and exhilaration that this is fun. It is equally capable of panic and fear. When things start to go wrong, it is the voice of the Basic Self that screams "cover the position, run, take cover" and find safety on the sidelines. Our health and ability to heal is linked to the Basic Self. As we become physically run down by stress, anxiety, and over work, it is the Basic Self which needs release and craves a little fun. Even when ignored, the Basic Self eventually gets atten tion and rest after we have broken down, with a flu bug, an ulcer, or worse. Our nutritional requirements are dictated by the Basic Self. The Conscious Self is like an android or robot. The early character of Spock in Star Trek is a most fitting example. Through the eyes of the Conscious Self the world is seen objec tively and in icy calm. It is expressionless as it sorts informa tion and weighs the best course of action. When the Basic Self has a compelling need for guidance, the need for someone to interpret, to reassure and direct it, the Conscious Sci f will for mulate a solution to appease and suppress it. The t�onscious


Self is untroubled by emotions or sentiment; its world is or derly, structured, and terribly limited. It seeks only what is use ful and constructive. Beauty becomes a definition, a category. The body is seen as a necessary burden, a machine that enables movement and reproduction. The Conscious Self is immune to emotion, yet, without the playful spirit, the emotional energy, and the vitality of the child, or Basic Self, it does not live. Only the sterile world of problems and solutions exist, confmed within boundaries of pure logic. It is the Conscious Self that thrives on analytic testing and provides the discipline to work endlessly to research new techniques and acquire scientific understand ing. Learning, reasoning, and logical deduction are the abili ties of the Conscious Self. When the markets turn into chaos on our screens and we react with robot-like analysis and icy calm, it is the Conscious Self which is in control. It is addicted to the endless cycle of problem definition and solution identifi cation. If the Conscious Self is always in complete control we rapidly progress towards burnout, lose balance and sight of our self-worth, and become overly self-critical with our lack of per fection. The Conscious Self knows nothing of the Higher Self. The Higher Self is a far and distant voice. Without it, life feels insipid, shallow, and incomplete. The sense that there is a higher purpose is the search for our Higher Self. The traps which block and prevent us from finding our Higher Self are selfish ness, ego, and greed. The internal radiation of warmth we feel when we give of ourselves freely is a glimpse of the Higher Self. It is our conscience, intuition, and spiritual guide in the larger scheme of things. Without it, our trading activities be come the world of the Conscious Self, the gray world of prob lems and solutions. Eventually we become overwhelmed with the sense that trading is no longer fun, but hollow, and leaves us barren and empty. No matter how hard we concentrate or try to re-ignite the inner spark and drive, our trading performance declines.

The Three Selves 33

Performance excellence requires balancing the three selves. All three need to be nourished and developed to attain extraor dinary performance on demand. An example of how the three selves interact together in our daily trading activities may help demonstrate how we all experience them in some form. Part of what follows will be blatantly obvious, while other aspects will need to be given attention in later chapters. Let me share a trading experience with you thatI had in 199 1.

The alarm clock went off at the usual time of 5: 15 AM, bliss fully ending a restless night of tossing and turning. The foggy haze of the hour was abruptly cut with the sharp knife of reality as I recalled that the Gulf War had begun last night. The usual groggy stumble into the shower was replaced with a frantic dash to the television to view CNN and hear the overnight de velopments in Baghdad. Just one day before hostilities broke out I had established positions of short Yen, long Crude, and short 400 S&P con tracts. I first learned that war had broken out during a phone call to the office from Grand Central Station in New York. My commute home from the Wall Street district to Darien, Con necticut caused two communication blackout periods when I could not be contacted. (Back then I did not carry a cellular phone.) Nagging instincts throughout the Lexington Uptown subway ride had prompted me to phone the office from Grand Central Station. Instinct proved to be correct. We were at war and I was tom between the disbelief and horror that Washing ton was actually bombing Baghdad, and the jubilation of my positions rapidly moving in my favor. I adjusted my stop levels and prepared for the second leg and longest communication blackout period of my commute home. The bar car was the place to be that night . The train ride on Metro-North from New


York to Darien took the usual hour; another fi fteen minutes by car and I was home. As I walked in my door and turned on the television, the trading desk phoned to inform me that the mar kets had already proclaimed a winner. The Coalition Forces had attained complete air domination, a scenario I could not have considered in my wildest imagination. I was educated in the Sciences, not mi litary strategy. While my Yen and Crude positions had been unwound at nearly break-even because of the earlier stop adjustments made from Grand Central, there was nothing that could be done that night for my 400 S&P con tracts. A gap up opening for the S&P market was already be ing called for in the morning. It was not going to be an easy day. The news confirmed what the markets had already deduced the previous evening; the War, in essence, was over. The commute back to Wall Street the next morning seemed particularly short.

The time was

quickly consumed with an inner conflict between

two selves,

each with different approaches to my S&P problem. The Basic Self part of me was filled with the fears and survival instincts of a child. It was an inner voice trying to convince me to throw in the towel right on open and take my losses quickly. It was chanting, "Don't forget big mistakes will get bigger with time." The android, or robot part of me was a computer in action. It took charge of the chaos of emotions and brought a sense o f order and control. The evaluation of options available to me and ways to unwind 400 S&P contracts eventually dominated and suppressed my childlike fear and flight-to-safety instincts. My Conscious Self took control by asking a string of questions. "Visualize the worst case situation on the screen now while you're on this train. What would that be? How The answer is simple. The worst situation is that there will you react to it?"

is

no

market; a limit move occurs right on open.

The Three Selves 35

''So what are you going to do?" the internal android asks. "Faint," my Basic Self interjected, beginning to panic. "No you don't," corrected the Gonscious Self. "OK, I know, work the back month." "How? Give me specifics. Never mind, too slow, I'll figure out the details." The internal conversation continued and finally a limit move was considered unlikely. Several other scenarios are then con sidered, evaluated, and potential game plans are constructed for the 'different outcomes that may occur. I began to notice that the speed and pitch of the train was changing. We were crossing the East River Bridge leading to the 1 25th Street Station. Winter in New York always seemed to be harsher and colder in this area. The season has no color, just shades of gray. The train moved past buildings which are hollow shells, blackened by fire. They are ruins, barren and empty, but still the building facades show exquisite artistry and architectural details of craftsmen long forgotten. Had these artists emigrated from Germany, Ireland, or perhaps Italy? I often wondered what country had donated such skill. The train moved on to numerous buildings facing the tracks with broken windows. They are still inhabited and residents tape plastic over the windows in an effort to block the biting cold. A group of black men were huddled around a small fire shooting up from a metal barrel positioned in the center of an empty lot filled with bricks, tires, and unwanted articles. As this scene passed outside the moving train's window, a third voice from within me began to speak to the inner child and android. "Listen Child, you too, Android. You two guys had better keep this image in mind today. Whatever hap pens in the market on any given day is unimportant.


So you're going to lose some money today. What's that in the larger scheme of things? Nothing! What about those guys shivering by the barrel? Do you re ally think you have problems?" Poof, my Higher Self stepped out of view and its voice disappeared as quickly as it entered the conversation. For a brief moment a sense of perspective was attained. As the train plunged into the blackness of the Park Avenue tunnel, the android regained control. "OK, what's another likely scenario for your S&P's? How about an open just above the third major resis tance zone from the close? Maybe. The fourth zone did contain numerous Fibonacci relationships." "Yeah, equivalent to The Great Wall of China... " piped in the Basic Self. "Enough about walls,'' the android abruptly cut in. "Where is the third resistance zone located?" "Let's see,

750 above the close."

"Gasp, I just want to dig a hole and hide in it today.

This has to be a bad dream. I think I'm going to be

..

sick," whines the Basic Self. "No you're not. Snap out of it. So where will the market retrace and what will you do? Will there be any orders within those levels to fill your size? Should you reverse this short mess and go long?" Rapidly the multiple scenarios with varying degrees of ini tial shock are replaced with a game plan formulated to fit the differing market opening possibilities. All possibilities were rehearsed and ready to go as the train pulled into the last sta tion. The doors of the train flew open, and like the starter 's gate holding back several fmely tuned explosive Thoroughbreds,

The Three Selves 37

the race began with a bolt forward . It was not going to be an easy day, but whatever the computer screen handed me on open, I would be ready to react to it. There would not be time to think, just do. As I walked down the narrow isle of multiple computer screens in the trading room, many traders were already at their desks. Just ahead was Marcus, displaying that familiar grin of satisfaction when he knew someone else was up to their neck in trouble. Not this morning. I really did not want to deal with his abuse today. For some reason the walk down that aisle brought back a very old memory.

Eight of us walked single file on the green carpet cov ering the marble pool deck for the final heat of our event at the Yoyogi National Stadium in Tokyo. The anxiety and pressure created an internal chatter and noise that became deafening. I was drowning in a pool of emotions. Then the training and preparation began to wedge between the inner folds of chaos. "Remem ber to focus. Imagine the tunnel around you." A calm

begins to quiet the inner turmoil, a voice has stepped in to take control. "Focus on only the end of the tun nel, a tube extends from you to the end of the tunnel. Everything within the twmel is in sharpest of detail." Everything outside the tube fades into a soft focus. "Don't fight the distraction, be aware of it, but let the distraction pass through the tunnel and out again . Accept it, then let it go. The distraction is only a tac tic to pull you off center. Stay focused; there is only

the now. Live the current moment to the fullest, feel and relish all the details within the tunnel as you walk.

Now visualize the start, feel the stroke mechanics to


the smallest detail. Stay focused; you have a job to do." Eight swimmers stepped up on their respective blocks. As I arrived at my own desk, one of the game plans rehearsed on the train began to unfold. The only question remaining was if this short position should be reversed. In my current frame of mind I couldn 't objectively consider going long, so I analyzed the charts upside down and made the conclusion that I should The time was 9:29 AM, the starter's gun in my brain was

look for an opportunity to go net long.

about to go off. "Release the tension, take three deep breaths.

In through the nose, out through your mouth. Now focus." The first tick hit the screen above the second maj or resistance zone. I was in trouble, but there were several other scenarios that could have been much worse. As the charts updated, only the process was in focus. W hat's the count? W here's the re tracement? "Pay 40 for 1 00," done . "Pay 20 for 80," done, done, done. All 400 contracts had been unwound; it was now 9:4 1 AM. Earlier thoughts began to distract me, and my mind wandered away from the trading room.

The swimming event in Tokyo was the 200 meter back stroke, four laps of the pool.

I still remember my

thoughts as I entered the second turn . "You're only finishing the second lap. Stay focused on the details,

to a shearing sharp pain that radiated up my left pointer dig in, don't ease up now. " The second turn then led finger, hand, and into my lower

arm.

A split second

error into the wall and I knew I had broken a finger again. "OK pain, I know I can 't block you out.

I

accept that you're there. Your timing to visit is hor rible. I'll tend to you later. For now stay focused, just

pay attention to the details of the stroket feel the rhythm

The Three Selves 39

return, yield to the pain, then push past it." Like a flawless computer, the stroke mechanics returned with renewed, effortless power. Water flowed around and over me without resistance. The sensation began to energize, replenish, and sustain me, there was no one else present, it was no longer a race, there was just the sensation of water rushing by effortlessly without sound, unrestricted by boundaries of time. It was 9:43 AM and the Conscious Self was calling. "Hello. Where are you? You're in the hole on that last trade, eh? So what, the damage is done. It's behind you. Remember when you hit the wall in Tokyo? Today is like Tokyo, this race is not over. Now dig in and re-focus ! " ,.Take a deep breath." "What's happening with the thirty minute charts?" "The wave count is ... and the technical indicators are forming a bottom ...the market is trading at a premium still. .. the resistance and support tables need to be re calculated." '•Do I want to go long? At what level will I be wrong? Where will the stops go? Where do I get in?'' The trading day fell back into a nearly normal rhythm. I hardly recall the day ending or how I moved from the office to Grand Central Station. I stepped on board the train for Darien and found an empty seat by the window. Wedging my knees up behind the seat in front of me, it didn't take long before I was asleep. I don't even remember leaving the station. The crisis was history, but tomorrow would be a new chap ter.


41

Goal Setting SO YOU SAY YOU WANT A TELEPHONE? To: VITALY KOROTICH, Editor in Chief ofOgonyok Magazine, Moscow New apartments are being built in Alushta, and tele phones are being installed for people who are coming to live in the city. Our district was built in the 1 950s, but underground telephone cables were not planned for, so we were left with no telephone. I have lived in the city for thirty-two years, worked hard all my life, and grew old here. You can imagine how angry I be came when I asked a telephone worker when our street was finally going to get telephones, and he said, "Buy a telephone pole, put it up, buy a telephone cable, string

it up, buy a telephone set - and then we '11 hook you

up."

Excuse me, where can I get a telephone pole? -T. ZAKHAROVA, Alushta 1 As professional traders, w e sit before our circus o f computer screens, network news displays, and assembly line of telephones. It seems inconceivable that someone in this age is without the simplest of technological necessities: a telephone. The letter & Schuster, In(; . from SMA L L FIRES by Christopher Cerf and Marina Albee. Copyrlaht 1 990 by Christo pher Cerf and the Editors of Ogonyolc Maaazine. 1

Reprinted with the permission of Simon


from Mr. Zakharova serves as a reality check for all that we take for granted. His letter also illustrates perfectly how to at tain a goal. If the first obstacle you need to overcome, no matter how strange it may seem, is to acquire a telephone pole, then start asking where to get one ! As two-sided is the sword of Mr. Zakharova's final question, it serves to illustrate how to tran scend the first obstacle most people fail to accomplish in reach ing their goals: he takes action. Goals motivate us into action to write letters, picket for a cause, face the difficulties in changing our careers to trading for a living from one that may have been totally unrelated, or provide us with the strength to sustain years of effort so that we may inch gradually closer to any goal we have defined for our selves. Emotion accompanies goals. Yes, emotion. That is our motivational force. It is our pas sion that minimizes the size of the obstacles blocking us from reaching our goals and fuels us through the periods of exhaus tion. So why is it then that this chapter, the very one that should be filled with passion and emotion has become the most diffi cult for me to put into words for you? Click. The fifth attempt for this chapter has just been obliterated forever with a click of the computer 's mouse button. Mr. Zakharova, how many times did you write your letter before the words came together to clearly represent your thoughts? I have really struggled to understand why this area ofthe book had become so difficult for me. I eventually began to realize it was based on a ten minute incident that changed the direction of my future. The incident itself will be shared with you later, but what is more important is to understand how that

brief incident in 1 976 nearly kept me from writing this chapter. Why?

within us; it is quite another thing to sustain the effort and en-

It is one thing to find and understand what ignites a passion

Goal Setting 43

ergy required to keep us on our path towards fulfilling our goal. While passion sparks the formation of our goals, how do we turn the passion off so we can let go of a goal? Do we have to let go of old goals in order to fully adopt and become commit ted to new goals? The answer is yes. Most discussions I've read about goal setting failed to ad dress the important element of letting go. Goals are so much harder to let go of than to set. A long term goal is sometimes never attained, and never will be. Goals are easy to establish. It's not that easy to walk away from something you may have passionately pursued for several years. The more time you spend trying to reach the individual milestones that lead toward a goal, the harder it becomes to avoid being fully consumed by that goal. I'll give you some specific examples shortly. The way you resolve unmet goals will have a major impact on your fu ture decisions. They can define the direction you decide to take at life's future crossroads. Let's begin with taking a look at some important aspects of setting a goal. If goals are derived from motivations and desires, then you may think acquiring money is a goal. It is not. Acquiring wealth is a goal. Money is just a milestone along the way. I 'll address money itself in the next chapter on motivation. A long term goal has to be accompanied by short term mile stones. It is these milestones that help build our confidence and allow us to measure our progress towards the longer term goal. Milestones also help us believe that a seemingly impos sible long term goal will be reached some day. We just need to keep taking small steps in the right direction to get there. The goal itself, with its accompanying milestones, should be de fined on paper. There's no room for generic, conceptual fuzziness. To quote Mr. T. Zakharova, of Alushta .. 0Excuse .

me, where can I get a telephone pole?" John Naber, four-time Olympic gold medal ist, spoke at the International Swimming Hall of Fame. His message eased the


pressure for many young swimmers. Simply put, he said keep in mind that you may some day want to hold a World Record, but for next week's swim meet all I want to see is 2/l Oths of a second off your best time. (He got everyone to agree that was realistic.) He then said multiply that time reduction by the nwn ber of meets you know are scheduled over the next five years, and you '11 find that the current World Records will be shat tered. There's even room.for a slump. It made sense then. It makes sense now. It even applies now as I sit at the keyboard writing this book. .. certainly the hardest thing I have ever at tempted. So I began to treat those thousands of random tom scraps of paper containing ideas for this book as those 2/ 1 Oths of a second improvements. Elaborating upon each idea, a small milestone, leading to the goal itself, a book. If you are reading this now in print form, the goal to have these ideas published for others to use was met. We need both short and long term goals. The components of a goal cannot be fuzzy. Specific elements are required to allow measurement. An example might be, you want to enter your first golf tournament within two years. (Not win it, get real, j ust qualify for it.) This goal has a time element allowing a precise measurement. If you've never swung a golf club be fore, this is a formidable challenge. The first milestone is to drive over to the course and schedule a series of golf lessons. When you start to play, actually chart your score by the indi vidual hole. Don't monitor your progress over the whole course with j ust your final score. You may find you're a whiz at the par 5 ... but a disaster at the short water hole. Tennis players get down on themselves when their game falls apart, but the whole game rarely falls apart. It may be the serve, maybe the footwork, follow-through on the backhand. . .maybe

just your bond trades.. .! suspect you've caught on. Break the task down into smaller elements. Keep track of your P/L by market traded, rather than by simply focusing on a cumulative

Goal Setting 45

bottom line. I have learned not to trade anything with roots or hooves, or the last two days before my end-of-month statement, or when I'm sick. The three selves, introduced in the previous chapter, need to be given individual attention. Goals and milestones need to be established for all three selves or we will be unable to sustain a high degree of performance or stretch ourselves to attain the extraordinary. Trust me on this one. You may think you don't have enough time to give attention to the three different Selves within you; just ignore them and they will make the time. You will eventually discover this when you are emotionally and physi cally burnt out from trading. Ignore the Basic Self and the stress

will, not may, put an abrupt end to your trading.

A major player in the S&P market warned me to take time out to have fun. I didn't heed his warnings ... I was too busy trading. Not long after, when I was unable to keep food down or sleep, my friend called me at the office and said, "You're through. It's all over. That's the simple part, and it's already been decided for you. It eventually happens to all of us. You're done. But you'll come back much stronger for it. Now re sign ! " He was right. I was a short horizon trader that focused on the markets around the clock. As soon as the S&P closed, there was time for a quick break before Tokyo opened ... and then on to London's FTSE 1 00. Carrying the duties of both analyst and trader was disastrous. Physical exhaustion drove my health straight down the drain and my P/L along with it. I can only hope you will heed the warning better than I did. Some burnt out traders (and I'm sure you know a few) never return to trading. Now that I 've tried the scare tactic, let me give you a few ideas of how to set goals for the three selves to keep you in the game. Your Conscious Self may want to manage a large fund and is satisfied by the day-to-day progress of learning technical

analysis and any element which increases your skill for attain-


ing that goal. Great, but what about the Basic Self? How about a goal to

run

the Colorado rapids, hike to Mt. Fuji, or build

your stamina for a two week bicycle ride next summer through Europe? Maybe learn to sail, play golf, or throw a pot on a

scious Self to take a hike and then do something for fun like read a comic book or watch cartoons. (The Rocky & Bullwinkle Show is my favorite . . . with the gang ofBoris, Natasha, Sherman

potter's wheel? The best traders know when to tell the Con

and Professor Peabody. . .and I love that moose ! Maybe my Ca

nadian roots?) You've really arrived when you can do it with out guilt. To attain balance we need to recognize that all three selves need to be nourished, exercised, and motivated. So what about the Higher Self? It is reassuring that the goal doesn't have to be grand. You don't have to personally save the rain forests. Stay within the boundaries of your comfort level. Saving the rain forests may not be your bag, especially when you live in a high-rise in Manhattan and the only forest you identify with is Central Park. So find something else that makes you more comfortable. Make time in your schedule to help a friend. Donate a day to AmeriCares or Habitat For Hu manity to build or repair a home for a needy family. Coaching a baseball team or teaching someone to read through a literacy program may be more appealing. Pass on something you know to someone else. Give a few sandwiches and apples to the home less at the Times Square subway station or in Battery Park. Anything. The point is contribute your time in a way that is beneficial to someone else without expecting some kind ofpay

ment. It feels really good, and besides, an improved self-image can contribute to some awesome trading returns. Beware that goals can become overpowering and have the

ability to own us. When your trading activities allow you to buy that Hatteras yacht, enjoy it for the fun it brings you. If you

truly don 't enjoy being alone on the yacht, find that you never use it unless you have people with you, but fear others may

Goal Setting 47

think less of you if you didn't have it as a trophy, you may have fallen into the trap of being owned by the possession, rather than vice-versa. Being owned by possessions will increase your base level of stress and will thereby negatively affect your trad ing. A "Catch-22" isn't it? Trading bought those goodies in the first place, and now it could be the goodies that are nega tively affecting your trading. That yacht may not be a release for tension, but a source of it, an Albatross that increases your tension and stress. When you want to sell the trophies, a great feeling of free dom comes along with it. It took me quite a while to identify my own trophies. We all have them. One summer day I was sitting on the deck of my Connecticut home, sipping a rum & Coke, looking out at the picture postcard view of sail boats gliding by on the Sound, when I realized this just wasn't me. Boring. I wanted to be out riding a horse somewhere. The possessions I had accumulated had left me feeling empty and asking myself, "So now what?" A very empty feeling after years of work. I was guilty of creating a stage setting that our culture and geographic area had defined as the image of "suc cess," but it wasn't my definition of success. As a result when the stage was set, it was empty, and I had done nothing to en rich or bring warmth into my life. The house, along with all the trappings surrounding it, owned me. I sold everything. I moved to a small isolated log home in the country: stone fire place, quilts, old pine furnishings you could put your feet on, surrounded by four-legged friends with wagging tails. The house was hard to get to, difficult to find, and was just what I always wanted. My friends thought I had final ly lost it. What they didn't realize is that I had finally found it, and "it" had been a very expensive lesson for me to learn. I had incorrectly believed that my goal was the image defined for me by ot he rs in the Wall Street community. However, what my sou l needed was somethin g entire ly di fferent.


Trophies are not necessarily materialistic. We hoard psy chological trophies as well. We cling to successes associated with a prior year's gains, a degree acquired from an Ivy League school, a prestigious or fashionable address. They are all forms of trophies, baggage we carry that is not constructive. These trophies are all inner obstacles that drain our ability to reach our maximum potential. At a later time we'll focus on just how damaging these inner obstacles can be. More importantly, we'll also address how to work with them. If the smallest step leading toward a milestone presents it self, take it, even if it seems to be through a back door. It takes courage to ignore all the reasons that our Conscious Self will throw at us to explain why this is not the right time or conve nient moment to change directions. The Conscious Self likes total control of all situations, but the perfect conditions will never be present, so take the first opportunity when it comes. The Basic Self needs security; change is an immediate threat. So that means two components of the three selves are at odds with one another. It causes tremendous turmoil and inner con flict. In such situations, Asian and Native American writings explain that it is the Higher Self which is pushing us into unfa miliar situations that we otherwise would not have taken. Goals on the surface seem to be tangible, but are in fact road maps to a better understanding of ourselves and lead to a sense of higher purpose. What we learn along the way while trying to attain a goal isfar more valuable than the goal itself. A goal to win a gold medal for the purpose of simply owning the medal to im press others is a great deal of work and a great waste of time for something you might simply buy from a pawn shop. The Higher Self can make us so uncomfortable that some how we find the ability to pull up stakes, possibly sell every thing, and head offinto the unknown. The motivation and drive may not be clear to us at the time; all we know is that it is the right thing to do.

Goal Setting 49

An important step towards reaching any goal you may have is being able to imagine the process. In athletics we are trained to visualize. V isualizing is like daydreaming, replaying and imagining yourself successfully pursuing the goal you've set out for yourself. See yourself successful at whatever that goal is, and then visualize all elements leading up to that goal. There are many applications for visualization. V isualization is an ac tivity that you choose to view images in your mind's eye that will influence your emotions and energy. Our central nervous system cannot distinguish between real and imagined events. For example, close your eyes right now and imagine a juicy, sour yellow lemon. In your mind, slice a big wedge from the lemon and place it in your mouth. Bite down into the wedge, feel the sour juices fill your mouth. Did you find yourself sali vating or your mouth trying to pucker? In sport, results are frequently dictated by the images and visions we have of our selves. If you see yourself missing that golf shot, you will cre ate tension and anxiety that will have a negative impact on your performance. If you carry images of success, you create an inner calm, confidence, and relaxation that contributes posi tively to your success. Jack Nicklaus, in his book GolfMy Way, talks about having very sharp, distinct images in his mind be fore making a single shot. First I 'see' the ball whereI want it to finish, nice and white and sitting up high on bright green grass. Then the scene quickly changes and I ' see' the ball going there: its trajectory, and shape, even its behavior on landing. Then there is a sort of fade-out, and the next scene shows me making the kind of swing that will turn the previous images into reality. In the last chapter about the Three Selvcst I described my visualization process for unwinding the S&P position I held as


the Gulf War started. I "saw" the computer screen and rehearsed how to respond to each scenario even though I was on the train. Visualization is not psychological hocus-pocus, it is a learned skill which needs practice. This will be discussed in greater detail at a later time. The last area for discussion is adjusting goals, or when to raise the bar. You raise the bar, or establish a new goal before reaching a major goal. Never touch the "golden ring" of your desire. The glitter, passion, and emotions that motivated you to

reach a distant goal may tum to dust. Goals need to be revised and continually kept just out of reach. When a very long term goal is attained, it should become a celebration ofhaving reached a major milestone towards a new goal already defined. Don i

ever let the goal itselfbecome thefinal destination. If you reach

your goal without something else to strive for next, you will find that the passion and drive dies, and in its place is left an empty void. It took me some time to learn that the real enjoy ment is the moment-to-moment process of the journey, rather than the arrival at the goal itself. The reason the glitter and excitement fades at the moment you reach your objective is that the goal instantly melts into our pool of knowledge and past expenences. .

The guys in the NACA tracking van interrupted to report that they heard what sounded like distant thun der: my sonic boom! The first one by an airplane ever heard on earth. And that was it. I sat up there feeling kind of numb,

moment, it really was a let-down. It took a damned

but elated. After all the anticipation to achieve this instrument meter to tell me what I'd done. There

should have been a bump on the road, something to

through the sonic barrier. The Ughknown was a poke

let you know you had just punched a nice clean hole

Goal Setting 51

through Jello. Later on, I realized that this mission

had to end in a let-down, because the real barrier wasn't

the sky, but in our knowledge and experience of su personic flight.

-General Chuck Yeager,

First Man to Break Mach 1 : the sound barrier

Yeager: An Autobiography

Reprinted by permission of Bantam Books

When I reached a long term goal for the second time, this time it was to manage a commodity portfolio. It was only then that I began to understand what had happened many years ago after working eleven years for the Eastman Kodak Company. From the time I was in University, I had wanted only one thing . . . to have some kind of responsibility for Kodak's Color Films. My major in University was based on early contacts I had made with the placement office for Kodak Canada Ltd. I joined Kodak right out of school and proceeded to learn every discipline of the business. I loved it and every aspect of working directly with professional photographers. When I learned that Kodak Canada primarily implemented the marketing plans created in Rochester, New York, I left Canada, my home and my family, andjoined Eastman Kodak-a move viewed by Kodak Canada at that time to be equivalent to a defection. The pain and con flicts were enormous. Eventually after several brief assignments in the United States, I entered Kodak's management training program, which led to the responsibility that had been my long term career goal since school: Product, or what some corpora tions call Brand Manager ofall Kodak Professional Color Films, representing a substantial portion of our division's earnings at that time. In hindsight, had I never been given that particular job, I might still be wprking for Kodak today. In essence, I had reached my dream . . . and there was nothing beyond it. I settled

into the cyclical transition of marketi ng plans, implementation,


and launch activities. Our launch activities included changing the name of KODAK VRG Film (a manufacturing name that stuck with the product, meaning Variable Resolution Grains) to KODAK GOLD. The name wasn't original; we stole it from Kodak Limited in England. That single strategic change in name, coupled with a launch prior to the 1988 Olympics, doubled film sales. In addition we launched the highly suc cessful KODAK COLOR WATCH marketing strategy. Sales generated by this strategy outstripped manufacturing capacity and required building a new production line. You likely know the program: in North America, Bill Cosby displayed the KODAK COLOR WATCH seal in commercials for years. The marketing strategy is still being used today. While our team grew the business for our division a stagger ing percentage, the process became automated. The passion was gone. Unknowingly at that time, my golden ring - the goal to head Kodak's marketing activities for their professional color films - had turned to dust. There was nothing else to strive for within the firm. The next rungs of the corporate lad der seemed to lead to more bureaucracy, fierce political battles, longer hours to be pushed into a punishing schedule that al ready consumed seven days a week, and worse.. .I didn't want to spend the rest of my working days in Rochester, New York, under sunless skies three-quarters of the year. We all believed George Eastman had built Kodak in Rochester because of the constant 1 8% gray skies - a shade of gray which represents perfect balance between the three emulsion layers which make up color films. The gray skies matched my spirits. I became the good corporate soldier. Management incorrectly thought I had finally developed management skills and had matured. In actual fact, I was willing to just let things take their own course rather than rattle management's cage and fight to move things ahead faster than a corporate bureaucracy could generally ac commodate. I settled down, accepted the limitations, avoided the political traps, and resigned to growing old . . .just after my

Goal Setting 53

thirty-fourth birthday.

Don � ever let the goal itselfbecome the

final destination. When you reach a goal, it should be a mile stone towards something new that you keep out of reach. When I worked for Kodak and stopped trying to buck the system, everything became routine. The Hunt Brothers silver crisis was unfolding in the market at that time, and my products became strongly affected by the spiraling costs. It was also around that time that I became far more aware of foreign cur

rency exchange rate exposure, and gradually I moved farther and farther away from marketing and closer and closer to the financial markets. A new spark was ignited, and I steamed through each day in anticipation of that night's chapter in a new home study course preparing for a useless series 6 and 7 exam. (I was such a novice, I didn't know that series 6 and 7 had little to no resemblance to trading reality.) I didn't care that brokers needed a sponsor to take the exams. I saw my first chart on FNN, a new station for Rochester Cablevision, and I understood it! Charts for photographic films are called D Log E curves, or density vs. log exposure curves. On these charts, the smallest shift on the x-axis or change of slope between any one of the three color emulsions plotted will predict an image change recorded by that film. As little as a two degree shift of a curve was considered a major displace

ment. These guys on FNN were looking for plotted curves that actually crossed or diverged ! There seemed to be some prom ise with . . .what did they call it . . . technical analysis. The new goal to leave Kodak became more defined when I attached a time element to it. I wanted to work on Wall Street within three years. I wanted to trade, that's all I knew. I was unaware there was a sellside or a buyside. Wall Street all seemed more interesting, energetic and exciting than Kodak in Roches ter. All I knew was that I wanted in. The career change came in some respects after me rather than vice-versa. I was merely receptive to a change and any opportunity that might bridge the immense canyon bet wee n


photography and Wall Street. Opportunities generally pop up when you' re not looking. Coming home from a business trip to Minneapolis in late February, my flight arrived into Chicago late, and I missed my connection to Rochester, New York. Finally settling in on the next USAir flight I noticed a tall man struggling to reach the seat beside mine. We both complained about the tight quarters as there was insufficient room for our knees and briefcases. So far it was a typical business flight. Shortly after the flight took off the man sitting beside me began to squirm and fight with his briefcase, a case that looked like it had been on safari through the Serengeti in Africa. As the man opened his case, I became aware that I was totally fixated on its contents. He had a pile of bond indentures, 1 OK, and 1 OQ reports. I had only read about such things in my home study course and had never actually seen one. (A game I still play on airplanes is to try and guess what someone does for a living and where they are from. Too many Sherlock Holmes books as a kid, I guess.) This man was definitely in some way involved with the financial world I had only begun to learn about. As the flight continued, we began to talk. After he learned what I did for Kodak, he asked me many questions about the strengths and weaknesses of two market ing plans described within sections ofhis reports. He also asked if the marketing plans complemented one another. I remember they did. I reciprocated with a string of stupid questions about bonds . . . and learned that a bond issue was the 1 7s of 200 1 , rather than in 200 1 . (It still seems strange; bonds mature in a particular year, not of a year.) He asked me for my business card and he in tum gave me his ... all four of them. Chairman of this, President of that. .. I had never heard of him from my uni verse of photography. His name was Stanford N. Phelps from Greenwich, Connecticut. At a later time he told me his story of how he had once hired some young guy by the name of Michael Milken into Drexel Lambert. I had been sitting on the plane

Goal Setting 55

next to one of Wall Street's junk bond kings. I had no idea at the time just where that flight from Chicago would eventually take me. Two days later the courtship began when a bouquet of flow ers was delivered to my office at Kodak's head office. Within three months I was saying my good-byes to friends, meeting real estate agents to sell my house, and giving many belongings away as I prepared to move from my Victorian home into a small apartment. The company was in shock because no one had ever returned the key to the firm's family jewels before. My family to this day can't believe I walked away from what appeared back then to be corporate security for life. To change jobs because of an acquaintance made on an airplane was con sidered unbelievable. For several years my parents wailed if only my flight from Minneapolis to Chicago had not been late. There were days when I have to admit that I had wished for the same thing. I learned to hate the sellside of the market, junk and corporate bonds alike. I didn't last long, but it was worth it. I had bridged the Grand Canyon between photography and Wall Street. If you are new to the financial industry, you will quickly dis cover that few people enter this field right out of school. The stories are as diverse as the people and markets themselves. What is of greatest interest is not the diverse industries that were crossed but the catalysts which led the individual to make such a major move. I jumped into the junk bond frying pan because I was afraid another opportunity might never come along again. Who was going to hire a total greenhorn with a photography background to trade? Don't call us, we'll call you. So when the first train to Wall Street seemed to cross my path I jumped on board. Anyway, I had only just learned what a bond was . . . Junk bonds weren't covered in my home study course. Apparently I was hired based on two credentials. The first was

that I could and did match up several takeover candidates with

AER CJDYNAMIC TRADING 56

my marketing training. The second was that I had once been a competitive swimmer. I was later told it was primarily the lat ter that led to the job offer. Did he think I was a natural for swimming with the sharks? Kidding aside, if you have been an athlete, you developed the same skills as those needed for trad ing. Take the exercises and lessons in the next section very seriously if you 're on the outside of the "looking-glass" now and want to get into this business. This leads me back to where this chapter began, with a dis cussion of how to let go of goals that cannot be reached. We have to let go of old goals sometimes so we can move on to new ones. The absolute worst advice someone can offer an other is, ''just move fo-rward and leave the past behind you." The early struggles I experienced with writing this chapter even tually homed in on this single fact: that unresolved goals from the past can't be shed by just walking away from them. It is not that easy. Goals that are improperly put to rest can and do im pact your judgment in future situations. One of my former unresolved goals became the catalyst for leaving Kodak. The fear of missing an opportunity that would leave me asking "what-if' was the only motivation I needed to take action when S.N. Phelps came after me. There were nu merous factors involved, but the primary catalyst was that ten minute incident I referred to in the beginning of this chapter that finally got me to sell everything, leave Kodak, and jump

into the unknown. Fear is one of the strongest catalysts for moving us toward a goal. What was the fear that motivated me to leave the familiar Kodak womb and go to Wall Street? I did not make the 1976 Olympic swim team. The Olympic trials are held so close to the Olympic Games themselves that final events can be sold out before the team is even selected. Swimmers who place third in the finals of the Trials become Olympic team alternates. Alternates were not allowed on the pool deck because there

Goal Setting 57

was insufficient room. I had decided that if I couldn't swim, I ' d go to the Games in some other capacity. I submitted a port folio of photographs to the accreditation office in hopes of at taining an official pass as a photographer. This is just about as competitive as finding a spot on the team as an athlete. Need less to say I didn't make it. So I drove from Toronto to Montreal with a new portfolio prepared and arrived at the accreditation office to try one more time to get in. This time I was met with a "Get out to Bromont. ..you're covering the three-day event. . .and you're late! " I wasn' t selected to swim, but I was a photogra pher at the Games and did cartwheels as I rushed to where the equestrian events were being held. This site was about as far as anyone could possibly be from the Olympic swimming pool in Montreal. I was grateful for this small blessing. One night, another photographer and I drove back to Montreal to pick up our transparencies from the lab. We walked down a different path from prior evenings and came upon a large struc ture emitting an odor that my nose immediately identified: chlo rine. The pool was right in front of us. During the Montreal Olympics the outer construction of the pool was incomplete, and we had stopped by a construction entrance, closed off by a large metal fence. To this day I can still remember looking over the plywood construction wall just beyond the top of the fence to see people in the distance sitting all the way up to the top bleachers, bright banners hanging down from the pool ceiling, and the top of the high diving platform with the flags of several nations flying. The pool itself was out of view, but the sounds and echoes of cheers were not. As the photographer beside me used the single overhanging construction light bulb to sort the day's films, I saw a security guard walk towards us. He started to send us on our way but for some reason stopped . I surely

had a strange expression on my face because he turned to me and asked i f we wanted to slip in to watch the next e v e nt from the top bleachers? I paused for a moment and beg an to walk


forward as he opened the gate. I'd never said anything to the photographer I was with as to why I was so interested in the swimming pool. Just as I stepped forward, I remember the

photographer beside me grabbed my arm and said he really had to get back to make a phone call to his magazine, he had al ready kept them waiting a half hour. Foolishly, I stepped back, thanked the security guard for his kindness, and began to walk away. I didn't hear a word the other photographer was saying. There was only a chant between my ears repeating, "Time to move forward, don't look behind, it's all over, move on to some thing new." I thought it was some kind oftest and the consol ing words from my coach were being replayed. I could hear the security guard slam the metal chain fence, wrap the heavy chain, and lock the gate behind us. The metallic sound seemed to reverberate up and down my spine. In closing the gate the guard had accidentally hit the construction light causing the only bright light source to begin swinging. Our long shadows in front of us began to swing from left to right as we walked away. All the while I was repeating, "Don't look behind, it's all over, move on to something else." We walked into a park ing lot that was completely black. There were no lights. We were swallowed by total blackness. I thought I had silently closed that chapter in my life as the metal fence slammed shut

that night. Or so I thought then. That incident and the sounds of the fence are still with me. Not continually, but every time I may be missing an opportu

nity, the image and sounds of that metal gate slamming at the Montreal Olympics comes to mind. The incident took on added significance when I later learned I had passed up seeing the actual event I had been training eleven years to swim. The pain associated with that new piece of information was indescrib able. Time should have put a new perspective on the incident, but it never did. The nightmares about looking through the fence at the pool, my view blocked, but still hearing the sounds

Goal Setting 59

and smelling the chlorine, followed by the metal fence closing, our swinging shadows swallowed by the blackness of that park ing lot, all return every four years. I ' ll finally put this one be hind me soon. In 1 996 the Olympics are coming to Atlanta. I now live near Atlanta. Coincidence? Fate? Who's to tell? It has taken exactly twenty years to have another opportunity to walk through that metal gate . . . some goals we just have to re solve completely before we can put them behind us and move on. Don't confuse failing to reach the goal as the underlying source of the pain that needs resolution. You can reach your

goal and still experience similar inner turmoil. The source of this deep anguish is being denied an opportunity. Consider the story of American

runner

B illy Mills who

stunned the 75 ,000 people witnessing the 1 964 Olympic Games unfold in Tokyo 's National Stadium. His story is one of the most unforgettable comebacks in Olympic history. In the home stretch of the 1 0,000 meter race, Mills unleashed a frantic sprint from far back in the pack, bringing the crowd to its feet, and pulled past the field to post a three meter victory. In the bedlam that followed, Mills was denied the opportu nity for the traditional victory lap. Although he had won, he anguished and felt unfulfilled for twenty years until 1 984, when he and his wife, Pat, revisited Tokyo's National Stadium. "I knew what I wanted. I needed my moment," he recalls. "So I went down to the track, and as I started around, I lived the race. I could sense the people in the stadium. Toward the end of the lap, I heard one person clapping. It was Pat, and I started to cry. It was raining, so I turned my face to the sky and re

gained my composure. It was the most satisfying lap

I' ve ever run." -From an interview with Billy Miiis by Joe Drape,

for the Atlanta Committee for the Olympic Games


61

Motivation and Self-Improvement " You Can Only Win One for the Gipper Once " -Red Auerbach, Former President of the Boston Celtics

Remember that Ronald Reagan movie when the dying foot ball player, George Gipp, asks Knute Rockne, Notre Dame's legendary coach, to tell the team to win that big game "for the Gipper"? The story goes that Rockne used the Gipper speech to inspire the Irish to a famous come-from-behind victory over Army several years later.

In Red Auerbach's book,

MBA : Management By A uerbach,

he expresses his thoughts about this approach. "It probably did work - once. My question is: What did Rockne do for an en core? He could only ask his team once to win one for the Gipper." Auerbach goes on to explain that there are too many "big games" in the course of an NBA season and that the magic formula is not an eloquently delivered message in the locker room. He states, "If your players aren't sufficiently motivated at that point, nothing you say or do is going to make the difference .

First ofall, you can � motivate a team or a group. You have to motivate an individual. We' re all too different. .

.

What gets one person going can tum off another. There's also no quick fix when it comes to motivation. It's a gradual pro

cess that starts in the initial recruitment of a player and builds throughout a career."

An individual 's motivation comes from loving what they do.

True, the money is important for both professional athletes and traders, but it can't keep you motivated in the financial or sports

arena. I f your own career is at a crossroads, imagine getting


paid for doing something you'd love to do anyway. Then if you are fortunate enough to be paid for doing what you love, the key is learning the strategies which can keep that inner spark alive. It is not necessarily a question of "how can I get moti vated?" as much as it is "how do I stay motivated?" While profit is assumed to be the primary motivation for anyone in finance, this assumption makes it difficult to explain the trader or investor who finds a profitable trading system and then abandons that system for another when something new appears to have greater promise. We are all driven by several different motivating factors. One motivation is discovering the perfect system. For these individuals, profit is not their primary motivation. System hop scotch is a symptom of someone who is in the business for investigative research. They have a greater driving force to satisfy their scientific curiosity than to accumulate profits. When they have a winning streak, they tend to go out and purchase higher powered computers with new improved trading soft ware with exponentially more features. They are driven to test all the new bells and whistles that their new software offers.

think what wealth they could accumulate if they learn to master The logic is that if they made a profit with one system, just

all the indicators ! Andrew Cardwell is a technical analyst re

nowned for his work and development of the Relative Strength Index (RSI). Andrew developed a valuable price forecasting methodology from specific RSI patterns he calls Positive and Negative Reversals. He commented that the original RSI indi cator itself was passed on to him by a client of his when he was a commodities broker. The client made money from this tech nical indicator, but abandoned using it. Why? He found some thing else that looked more attractive and appeared to have greater financial reward. Cardwell has since put a lifetime into the research and successful development of this analytic method using RSI. What became of the client that first gave him this

lvfotivation and Self-Improvement 63

information? He apparently eroded his account to zero as he pursued his need to find the perfect indicator. Such individuals are motivated by trying to find the "perfect" system; they fool themselves into thinking they are strictly motivated by money. Profit alone will not sustain their drive; they will continue to tweak and test indicators for their entire trading careers to ful fill their need to satisfy their scientific curiosity. What about motivation for the intellectual challenge? The intellectual challenge is coupled with the motivation or drive to "beat the game," a game that we are all too aware few are ca pable of winning. When I was beginning to trade, one of my mentors stated that the S&P was the most difficult market to trade. As this comment was reinforced by watching traders shy away from S&P futures (generally trend followers}, it only served to fuel my motivation to win at the game of trading S&Ps. That's probably why my trading career has evolved towards the S&P futures market. I 've always been motivated to go after what was labeled ''the toughest," so why should trading be any different? If I had been told soybeans was the toughest market out there, and reinforcement from others had backed that claim, I would have likely burnt the midnight oil studying the factors and influences of the soybean market, instead of the S&P and financial markets. We all have motivations in varying degrees. Remember, we are made up of three distinct individuals; it is no surprise they have different needs to be satisfied. The Basic Self will estab lish a motivation for the excitement alone. The Basic Self, our

inner child, likes to have fun. When there is an imbalance, it can manifest itself in an addiction to the adrenaline rush assoc i ated with the "trading game," similar to excessive gambling. The symptom to watch out for is a need to pla y the trading game all the time. Is it difficult to step to the side and watch a fast market develop? Do you have to be part of every signifi

cant intraday move? Are you able to take a week off an d not ..


watch the markets? No papers, no news, no phone calls back to the office to find out what's happening in the markets? I used to go through withdrawal symptoms the first three days of a one week vacation. How about you? Do you have a sense of relief, an actual sense that you have reduced your stress level because you have just established a position or are no longer flat? Look out if you answer some of these questions "Yes." Obsessive traders will be unable physically to sustain the pres sures of the trading game for long. Their longevity will be extremely limited. I have this obsessive trait and know it for what it is, one of my weak links that has to be consciously kept in check. Obsessive motivations must be kept in check so they do not cause an imbalance among the three selves. Don't forget to consider ego as a motivational force. To some degree we all have an ego and need one to believe we can succeed where so many others have failed. However, if ego is not in check and is an imbalance to your other motivational traits, the markets will destroy you until humility and respect enter into your line of perspective. One trading room I worked in, early in my career, had a trader who would periodically an nounce: "I can do no wrong." When that phrase was uttered, it was my signal to fade this trader. I didn't trade this particular market often, but this was an exception. His ego usually led him to a huge loss when he knew he "could do no wrong." Fading him until his major hit occurred usually led to a very profitable gain in a very short period. When that one trade finally cost him dearly, I knew not to fade him any longer, and directed no further attention to his trading activities. (We'll address why this was incredibly foolish for me to have done at a later time.) Everyone is different and, as Auerbach notes, no one thing motivates all. Actually, motivation �terns from multiple rea sons. Multiple motivations explain why we establish multiple goals to satisfy each of our three selves. It is more than impor· tant. it is essential to know what motivates us. This has a direct

1v1.otivation and Se!f-Improvement 65

impact on how we trade. As another example, I will never be a long term horizon investor because part of my own drive is the excitement of the markets. My personality needs to see results fairly quickly. I do not fit the profile of someone willing to sit and wait through a corporate restructuring for a junk bond to be revalued. That is as exciting to me as watching paint dry, even though the financial rewards are tremendous. I just don't have the patience for it. The temperament you have becomes an extremely important factor to the trading horizon you should focus on. It will have a significant impact on the potential you will have to make a profit. If you are trading a weekly horizon, but your trading personality is a closer fit to a six hour horizon, it won 't matter how much you know about money management. Proven money management principles will most likely be thrown out the win dow as the trader who is forced to trade longer horizons begins to over bet in the need to satisfy his motivational drive for ex citement. A great money management myth is that there is less risk associated with a short term horizon trade compared to longer term horizons. 'The standard deviation of prices will be t

greater with longer time horizon positions, but

the market draw

down will be about the same/ The reason for this is that the short horizon player generally holds much larger positions than the longer term investor. It is extremely important to understand what fuels your own motivational fires. I recall an employer, whose capital I was trading, walked into my office to view the screens. (A situation to be avoided if at all possible.) I was looking at a five minute S&P chart, it was a thin market during lunch time, and some novice trader entered a market order to buy 50 cars. The pit locals had a field day on this order and ran the market a dollar ($500 per contract). My employer knew we had a simble short

position at that time and began to pan ic

.

I called the floor; I

knew it was a market order that was being worked, and at the same time that the locals finished pressing the market for this


order, the pit became deathly silent in the background - a sign that there was no other paper entering the pit. I entered a limit order to sell another 20 cars immediately, and I thought my employer was going to have a stroke. The short lived rally was indeed over. We had actually found an ideal level to sell and add to our current position. The market did retrace the entire move up, and my employer survived the crisis he had perceived on a five minute chart. His logic, however, was surprising: he

said that is why he much preferred us to focus on just the weekly charts and longer horizon trades ... they were less risky. He was

very serious too ! So what differences are there between someone who even tually drops out, having lost sight of their goal, and another who continues on through all the slumps, back-testing, and emo tional ups and downs that we traders experience? As with ath letes, the individual who sticks with it likely knows where he's going and values his goal. The professional basketball player that already has his multi-million dollar NBA contract signed is no longer motivated by the money. What keeps him going? In professional trading the same analogy can apply. Regardless of what drives us, there will be times when our motivation hits skid row. It's during these lulls, or down times, that there are specific strategies my coaches used to reignite the motivation. These strategies do apply to trading. The first strategy is actually harder for an athlete to accept than a trader. The trader 's-advantage is that he is already famil iar with cycles and accepts that they exist. It is immaterial if you believe they are reliable enough to trade from or not. So if you accept that there are cycles in the markets, it is not difficult to make the association that there are cycles within ourselves. Our motivations will have their seasons. There are going to be some down times. Accept it. There will be cyclical develop ment periods of our Three Selves as well. We may be at times loud, boisterous, extroverted, and outwardly highly productive.

lvf.otivation and Self-Improvement 67

At other times, a cycle will influence a time when we experi ence an inner reflective and quiet nature that will offset the early stress and tension from the crest of the prior cycle.

Devel

opment ofour inner selfis cyclical. Sometimes we just want to goof off and play, and at other times we may be very attentive, driven and methodical about our intellectual research and trad ing activities. It is important not to become too rigid within a trading schedule. For example, there are many disciplines as sociated with trading that we need to spend time on: money management skills, analysis back-testing, trading technique, market research, etc. Utilize the variations to your advantage. Learn to recognize and accept your own cycles of development and accompanying ups and downs. Coaches teach athletes that it is natural to lose it, "it" being your balance, your drive, your edge, or perhaps even your skill for a while. Have patience; it will return. This is natural. It is important to yield to these personal cycles rather than fight them. You may be able to offset the timing of an expected cycle low or crest, but you won't be able to avoid it. The lows in sports are called slumps, and there 's never a good time for them. The crests are called peaks, but there is definitely a right time to peak. Peak too early or too late and the "big game" is lost. No one can sustain peak performance all of the time. If that's what you 're after, forget it!

No one can sustain peakperformance all ofthe time.

It is extremely important to accept this, otherwise you set your self up for an emotional setback. If you judge yourself harshly or unjustly during these setbacks, then nagging thoughts arise that will question why you should continue? In Fred Robe's book,

The Zen ofRunning, he describes:

"If the dance of the run isn't fun then discover another dance,

because without fun the good of the run is undone

. and a suffering runner always quits. sooner or later...


Our motivation is directly proportional to the pleasure and personal rewards we allow ourselves. Go back and re-read that last sentence . . .it is loaded. We have to allow ourselves a per sonal reward. I'll address this in more detail as it is the source of one of our trading obstacles that we need to overcome: self sabotage. Do you reach a certain level of profit in your trading account, and then begin to chap.ge your trading style so it leads to a major loss? This is a form of self-sabotage when you don't believe you deserve a favorable outcome or reward. We'll come back to this discussion of self-sabotage. The other factor is that our motivation is directly proportional to the pleasure we expe rience in striving for the milestones that lead to a goal. I in tensely disliked the field of junk bonds and had to change. I not only had to change the market I was involved with, but I also recognized I wanted to switch from the sellside to the buyside. For those new to the financial industry, the sellside of the market requires a broker ideally to find both a seller and buyer to execute a cross trade simultaneously. In a cross transaction, settlement passes from the seller straight over to the buyer. Therefore no, or very lim ited, capital exposure exists for the firm in the middle of these cross transactions. As a result of the lower risk, the firm can justify higher commissions for a cross transaction and thereby establishes the motivation for the broker to find both sides of the trade. On the buyside, you risk your own, or your furn's capital. You don't go out into the market to find someone that can take the other side of your trade.

A change does not necessarily have to be from the sellside to the buyside, or to a different discipline or market within the business. It is equally important to change your routine, give yourself a reward, or introduce new elements into your sched-

.M.otivation and Self-Improvement 69

ule to keep you vigilant towards a goal. The hardest reward to give ourselves is time off. It's important. Actually, it's essen tial ! When our trading seems to be on a hot streak we can't leave for fear the momentum will be broken. When we are in a trading slump, especially if we 're on a trading desk, we can't afford to take the time off when we are down . We promise ourselves we will take time when the slump is over. Quality time is never found in such situations because there is no in between, we are either on a hot streak or in a slump . It 's not often we trade on a flat line. No one can trade all of the time. The fastest way to make many principal investors crazy is to show inactivity in their account. I ' ve learned that for many investors

losses are more acceptable than accoun t inactivity.

This is nuts. Another important reward is to buy ourselves an occasional gift. Go buy that speed boat that invigorates your soul. Then when you hit a slump, and we all do, you won' t get caught at home wishing you had bought it when you could have, rather than having given all the money back to the market. If after a string of trading losses you experience a drastic decline in your motivation, you are likely being affected by a specific problem - investing too much ego into the activity. We then measure our own self-worth by the results of our trad ing, or sport, thereby allowing the result to become a danger ous mechanism for ego-deflation. Good coaches have many different ways ofpicking athletes out of the dust when this hap pens, but their obj ective is always the same: to understand that excellence is achieved by improving upon an error. Without loss we would be unable to reach greater heights. We need to learn how to lose before we can learn how to win . Leaming to cope with a loss and learning to constructively use our down cycles, lays the foundation for our successes. Knowing how to lose and knowing how to cope with the loss wil l remove the fear of potentially experiencing a failure when you try. It's go-


ing to happen, it's cyclical. Coaches teach athletes to blend with these cycles of ups and downs, not to fight them. View a loss as an opportunity to improve, and it will be far less damag ing to your ego. Frequently we are called upon to motivate ourselves to do something that we really don't want to do. This is very differ ent from when we want to create a motivation, or identify what our motives and goals are for doing something in the first place. But when the task is viewed as unpleasant, the trick is to break the task into small, manageable segments. When a job seems easier to do, when we believe it is possible, motivation is more available. Analyzing government bond spreads is one area I have a hard time getting excited about. B y breaking certain steps down, or integrating other aspects which are more enjoy able, it becomes a lot more manageable. For longer tasks set up a system of rewards. Give yourself a payoff when you pass a milestone. For example, a dinner out, a live show, or my favorite . . .a chocolate fudge brownie. (Government bond spreads can be very fattening. ) Be cautious about being motivated to accomplish goals sim ply for the sake of achievement alone. This creates extreme tension and pressure. Continually being fixated on reaching a goal will actually build a serious obstacle which will prevent you from attaining that goal. The limitation is that you will put - more attention towards the future and never be able to fully live, concentrate, or immerse yourself completely in the current moment. This in turn may become the flaw that holds you back from performing to your best ability and thereby hinders your improvement. The frrst chapter introduced the Tao mindset ofthe Beginner's Mind. If you believe you have all the answers, you impose a false limit on yourself. Self-improvement happens in an infi

see yourself as a beginner, and protect yourself from thinking

nite number of ways - be open to them. Try to consciously

lvI.otivation and Self-Improvement 71

you know it all. For a period of time I designed trading models for nwnerous Foreign Exchange traders working for major firms in New York, Chicago, and Los Angeles. There were at least one hundred different models I designed for individual traders. (Can you think of any better way of exposing yourself to a wide variety of traders from which to learn?) Some approaches the traders used were very unique applications to common prob lems. Other traders used methods which were variations of common indicators. The top traders I encountered all seemed to have a similar trait: they were all trying to learn something new each day. The traders often posed questions to find out if I really knew my stuff. Once I was accepted, these traders be came relentless learners. They had endless energy for trying new ideas and finding other ways to profit test their approaches. On the other hand, I frequently found that those traders who already knew everything and were highly skeptical about being given anything new, had serious flaws within their indicator setup. They frequently used the pre-defined variables that are established as default limits by their quote vendor and discarded new approaches which could have resolved timing or reduced false market signals for them. As a totally inexperienced greenhorn when I left Kodak, the trading room and brokers were extremely intimidating. Even tually I caught on that by learning just one small thing a day, your abilities will soon surpass many around you. The reason is that many reach a plateau of achievement, and then they stand still, or maintain a holding pattern, thinking they have learned all there is to know. Those who have stagnated will be passed. I gave a presentation at a conference in Las Vegas that in volved a trading demonstration. I was setting up the overhead materials, waiting for the audience to settle in. As is normally

the case, I tend to scan the audience. My eyes and heart stopped when I recognized one individual sitting near the front. George

Lane was in attendance. My presentation included a rather

AER ODYNAMIC 'TRADING 72

graphic example of when his StochastiCs indicator would reli ably fail. I had planned to include this failure as a signal for when traders of size could fade the smaller trader. It would be the smaller traders that would supply the volume for a larger order coming into the market on the other side. George Lane had created the Stochastics indicator. He is recognized as one of the best lecturers among all analysts, and is also well known for not being shy about expressing his opinion when he audits a lecture.

He cheers robustly for someone presenting well

crafted new research.

Flaws · in logic are brought to the

audience's attention with equal fervor. He also makes sure the speaker does not move on until a topic is distinctly covered for the audience. George Lane 's presence is formidable. In this setting, my first reaction was mild panic. I considered skipping my examples ofwhen to fade Stochastics, but then thought better ofthis flight-to-safety instinct and charged ahead with the origi nal game plan. I was confident that I had done my homework,

confident that I had done enough testing to rebut any challenges that George may have raised during my lecture. So I charged ahead. To my relief, and somewhat surprise, George Lane be came my supporter, sharing his boisterous and warm enthusi asm openly. He was one of the most outspoken individuals in attendance. His inquisitive comments and questions contrib uted to everyone present. George is in his seventies, but he still has the curiosity to learn, share, and listen to new ideas. He doesn't stop learning or asking questions.

He comes to the

table with his teacup ready to be filled and exemplifies the Beginner's Mindset that was mentioned in the first few pages. We need to take the time to reflect and learn from our cur rent progress and mistakes. A client of mine, referred to in Jack Schwager 's book, Market

Wizards, once had an unprofit

able trade during a contract rollover in the S&P market. This

individual has been in the business for a great deal of time and

is highly respected throughout the Industry. The trade did not

1\11.otivation and SelfImprovement 73

lose much money, but regardless, he struggled to understand why that trade went wrong. He soon recalled an identical cir cumstance from when the cost of carry was out of line in a similar manner. Not in the last year mind you, several years back. Longevity in this business is rare. I attribute his market success and survival to his assertive attitude to reflect upon past errors and successes and to learn from them. One day when I was moaning to him about an error I had made with a trading strategy, he asked how old I was? When I answered he told me, "You better be making errors. How else are you going to learn?" His commitment to learn from every winning and losing trade has made quite an impact on my trading approach. Reflection takes time and practice. Reflect on your feelings towards trading, its patterns and rhythms as they present them selves to you. Also work on understanding the interaction of your personal life with your trading performance. This interac tion contributes directly to our trading performance fluctuations. Reflection can also help you get a grip on reality. If you are physically exhausted and drained, your trading performance is going to decline. One year I took a terrible nose dive with my trading track record. Until that time it had maintained a steady growth that ranged between a 27% to 43% annual return. It was too late when I finally took the time to reflect on what contributed to this trading disaster. It boiled down to two weak nesses actually. I learned not to trade the last day preceding an end-of-month statement, and also never to trade when I was sick. After evalu ating every single trade, I discovered that by removing those particular days from my bottom line would have produced a net profit of +34% for the year, rather than a negative return. Be fore this evaluation, I was unaware I took greater risks in front of a P/L statement and unaware of how illness caused me to lose my intuitive timing and instincts.

AERODYNAMIC TRADING

74

While I was struggling to understand the factors that con tributed to my worst trading year, I had uncovered a beat up, old coaches' manual for track. In it was a section to help a coach try to understand why an athlete 's performance had sud denly taken a turn for the worse . It offered this list to test if the athlete had been presented with any new distractions to account for the decline in his recent performance. My jaw dropped when I read it I could answer yes to every question . . Think . . .

.

back on when you have had a trading slump. How well would

you fare on this list? Be honest with yourself. •

Have you experienced changes in sleep patterns?

•

Has there been a death or loss of a close rela tionship,

•

or major illness of a close family member?

•

Have you had an increase in financial responsibility?

•

Have you recently relocated?

•

Has your social life taken on a new dimension?

•

Has your interest in [trading] changed in any way?

•

Have you recently been injured or excessively ill?

Answering yes to one or more of these questions was sug gested in the manual to h�ve sufficient negative effect to inter fere with the athlete's capabilities, attitudes, and performance ability in track. As performance in sports and trading are im pacted by similar psychological factors, this list clearly applies to trading. If one or two are proven to have an effect, just think what happens when you can answer yes to all of them! All of these questions actually help to identify performance obstacles.

So does experiencing an equity curve change just before an

lvf.otivation and Self-Improvement 75

end-of-month or end-of-week statement.

Each needs to be

handled in a specific and different manner, which will be fully discussed in Part III, "Inner Aerodynamics: Enhanced Trading Skills Through Professional and Olympic Coaching Tech niques."


77

Psychological Tactics The yielding can triumph over the inflexible; The weak can triumph over the strong. Fish should not be taken from deep waters; Nor should organizations make obvious their advantages. -Tao Te Ching, no.36 (Original Chinese source)

Trading for a firm in Boston whose roots wer� based in Hong Kong and whose principals are Chinese made me very curious about Asian learning approaches. This led to my introduction of the very ancient Tao Te Ching. In traditional Chinese learn ing, the cyclic transformation of all aspects of life is understood as constant movement. This process is the Tao. To be really good at something requires the presence and participation of your mind, body, and spirit in total synchronization, with spon

taneity and centered awareness. I can think of numerous coaches who unknowingly adopted the Tao Te Ching, or were silent students themselves. Most of what they taught me in sport, which applies to trading and business, is defined in the Tao Te Ching. Coaches spend time not only training the athlete's body but training the mind as well. We are taught strategies to prevent being psyched-out by an opponent and tactics to enhance your own position in a competitive environment. These are given a great deal of attention. Most ofthese tactics, or game plans, are derived from two simple strategies also suggested by The Tao. The first is to conceal any advantages. Concealment does not promote any resistance or counter force. The second is to over come those who are inflexible by yielding. Let me explain.


In trading rooms where traders are closely packed together, a competitive environment is created that is no different psy chologically from any holding area created for competitors prior to a high-stakes sporting event. The similarity finally dawned on me when a trader began to express similar lines and tactics I had experienced in locker rooms prior to swim meets. Fading cold traders or shadowing hot ones will continue as long as there are traders. I managed to get away with fading the trader that exclaimed, "I can do no wrong", but I was wrong to have paid any attention to him. As confidence in my own abili ties grew, I stopped taking any notice of others around me. My mentors all share a common belief- that the best traders are

completely independent and don 't care what another trader 's opinion might be. For the majority however, let the head games begin. By being aware of the games being played, it becomes easier to blend with them and ignore them or apply them in other ways. One New York trader I heard say, "I'm tired, I 've had no rest, I just lost a bundle on that last trade," when in fact he hadn't closed a position at all, but was opening one. At the end of the month we learned this guy just had the best month on the desk and had "dropped" nearly everyone behind in the process. His low profile caught those who fade or shadow a trader off guard. He gave the appearance of being noncon frontational, not at his peak, and vulnerable to making errors. This subterfuge gave that trader a competitive advantage. How ever, the real advantage is retained by the trader who is com pletely independent and pays no attention to others. Shadowing and fading occurs in the pits as well. There are tactical strategies used between traders oflarge positions against the exchange floor locals. The same tactics apply. Big players cannot show a physical stop. There are times of course that you have to place physical stops, but as a general rule it is best not to show all your cards. If you think an order is quietly held in the hands of a broker waiting to be revealed and executed at an

Psychological Tactics 79

appropriate time . . . Ha! Time to shed the scales from your eyes. Standing beside the S&P pit you can see orders passed from a

desk to the runner. Larger orders then start a vocal outcry from the top tier of the pit. An announcement is heard about whose order has just been received, what size, and at what level. Put

a few juicy carrots in front of the locals during a thin market that offers them the opportunity to position themselves favor

ably. . . and you get a run on stops. A wash and rinse cycle, so to speak, where all the stops are washed out and the traders have to reposition themselves at a higher/lower level than they might otherwise have had prior to the run

.

There are tactics where this knowledge becomes an advan tage. Bidding a market up to have a more favorable sale for larger orders is fairly common practice. In essence this is no

different from what the pit locals are doing by running stops. A small, well-placed market order in the S&P pit during the lunch

time lull will sometimes become the "sacrifice fly ball" to fill a larger order coming into the market on the opposite side. This would not be the situation for much larger market spikes. You need to intimately know the character and mechanics of the market you are trading. It is easy to make incorrect assump tions about what is contributing to a market's move. As an example, a big deal is made throughout the S&P trading com munity when the pit reveals an order is being worked for Paul Tudor Jones that leads to a sharp market spike. The pit and many traders will assume Jones' firm is bailing out of a large position in trouble. Their assumption is most likely wrong. More often while the pit is forming that sharp spike, the real play is a cash order being worked for Jones ' firm. The S&P pit is only seeing the dollar neutral hedge being worked as a much larger cash order is being executed simultaneously through the Daisy computer that handles block orders for the NYSE. As a result, the pit incorrectly assumes that the trader has been caught on the wrong side of the market, when in actual fact, he has


established a hedged position or a net position on the other side of the market. The pit and smaller traders ' erroneous assump tions are reinforced because the market may then develop a sharp move in the opposite direction. However, the real point is: you shouldn 't care . Trade your own game and disregard who is trading what for whom. If that spike occurred just after you established your own position, resulting in your position being stopped out, reestablish it. FAST ! Don 't waste time try ing to figure out if Tudor is in trouble or not. It doesn't come off your bottom-line, or for that matter, contribute to it either if he is right. Once you have been marked or identified as a significant trader based on the action and size of your orders (or if you frequently identify the market's pivot levels), then it becomes a different ball game for that trader or firm. It is not enough to evaluate the direction of the market; you must then learn to contend with the added complexities of disguising your orders so the pit doesn't identify you. The pit would then shadow your orders, making it difficult to be filled. There is a great deal of truth to the saying, "if the locals fill you easily. . . you're probably wrong." Most psyche-out tactics are counterproductive. That is, un til you are taught how to use them as controlling tactics. The difference is that most psyche-out tactics have a negative effect caused by belligerent techniques. Successful tactics strive for

minimum conflict. In long distance running and swimming races, there is a great deal of strategy and tactical activity. Tak

ing the lead is often followed by losing the lead. An athlete fully prepared and trained looks beyond the moment ofholding the lead or falling behind. Understanding this can help you gain the advantage and enhance your position over an oppo nent. In trading, who is the opponent? The market, everyone else, but primarily ourselves when we have lost our center of balance. Here are a few other points common to both athletics and tradinfl:

Psychological Tactics 81

•

When you let go of an obsessive need to win, you decrease your tension, stress, and anxiety level and increase your probability of winning.

•

When you want to run faster or be stronger, don't force it - relax instead.

•

Insecure athletes and traders promote them selves; they attempt to appear strong, when in reality they're not.

•

Trying to quicken your rise to the top sets you back. Evolve slowly as an athlete.

•

When you meet with rigidity, become flexible.

•

When you want to achieve in sport or trading, you must give - time, effort, and yourself.

•

•

Give the appearance of vulnerability, and you 'll be stronger. Conceal your advantages to catch others off guard.

Experience and continued exposure to psychological tactics will certainly prepare us to deal more effectively with new tac tical maneuvers; however, the key is not to create a counter force. On the other hand, psyche-out tactics will be successful if we never stand our ground. So how can you avoid becoming a wimp? By learning to deflect incoming tactical maneuvers. Over time this book will establish the foundation and knowl

edge required to deflect such maneuvers. Then you can counter with an unexpected surprise, having concealed your advantages.

84

Al:RCJIJ YNAMIC TRADING

Part Ill: Inner Aerodynamics 85

Try not. Do. Or do not.

There is no try. - Yoda

OK, up to now you have been involved in a passive way, able to sit in your easy chair, read at your own leisure, and have no demands placed upon you. Your passive role has just come to an end. Now the training begins. Oh sure, you may still remain passive, but then you will not improve your skills or establish the essential foundation needed to tackle the really tough obstacles such as stress, failure, decision paralysis, and performance slumps. In a sense, I am excited for you. If you have not been involved with top coaches and their techniques for creating champions, then you are in for an exciting j oumey to new awareness. Once you become aware, there is no turn ing back. The outlook you currently have towards winning within any competitive environment will be changed forever. You are about to enter a private training clinic. It is essential that you allow yourself to become involved. In this clinic, a variety of exercises will be presented for you to practice. The exercises will collectively provide for you a shift in your focus that will make the difference between stagnating at the skill level you currently have versus rapidly building upon and en hancing your abilities. You will learn how to filter and mini mize external distractions, and then how to filter distracting thoughts . We will work on your ability to focus, concentrate, and center yourself on

demand within highly demanding and

stressful situations. Of course that assumes you actually

DO the exercises.

Pre

ceding an exercise there will always be an explanation with

AER <>DYNAMIC TRADING

86

examples to provide you with the necessary foundation and understanding. Then you will be asked to take an active role. To satisfy the Conscious Self, the purpose for each exercise will be given. Some ofthe exercises will make you feel uneasy,

others will be fun, and some will require thought, pen, and pa per. All are important. You can't skip any of the steps or you will likely choose to skip the very aspect that you need most to help yourself. Give them all a chance and know you are work ing directly on the basic foundation ofyour trading skills. These attributes for success are proven, they work, and they will have greater ramifications than you may first realize. I hope you have learned that mastering a specific indicator, or a trading technique, will never be enough. By gaining this awareness you have prepared yourself to move on.

are ready to train your mind.

Now you

You are ready to acquire the

inner skills you need to establish your edge. As with any top coaching clinic, we begin by first watching and listening to a Master. This is usually accomplished by view ing a film or video. Then the components of the skill are bro ken down and fully analyzed. This is the approach we will take together now. The words of this particular coach, or Master, are words you have heard before. However, at your first intro duction it is very possible that you did not fully comprehend the meaning and depth of his words and actions. You will.

Part III: Inner Aerodynamics 87

This training clinic begins with an excerpt from a film script written by Lawrence Kasdan and Leigh Brackett from a story by George Lucas. Get comfortable, enjoy the multidimensional symbolism, have fun with it once again ...

... We have begun ...

AEH CJIJYNAMIC TRADING RR

THE EMPIRE STRIKES BACK

EXTERIOR: DAGOBAH - CREATURE ' S HOUSE - NIGHT

A heavy downpour ofrain pounds through the gnarled trees. A strange baroque mud house sits on a moss-covered knoll on the edge ofa small lagoon. The small, gnomish stru.cture radiates a warm glowfrom its thick glass windows. As the rain tap dances a merry tune on Artoo s head, the stubby little android rises up on his tip-toes to peek into one of the glowing portals. INTERIOR: CREATURE ' S HOUSE

Artoo, peeking in the windows, sees the inside ofthe house - a very plain, but cozy dwelling. Everything is in the same scale as the creature. The only thing out ofplace in the miniature room is Luke, whose height makes the fourfoot ceiling seem even lower. He sits cross-legged on the floor of the living room. The creature is _in an adjoining area - his little kitchen - cook ing up an incredible meal. The stove is a steaming hodgepodge ofpots and pans. The wizened little host scurries about chop ping this, shredding that, and showering everything with exotic herbs and spices. He rushes back andforth putting platters on the table infront ofLuke, who watches the creature impatiently. LUKE:

Look, I'm sure it's delicious. I just don 't understand

why we can't see Yoda now.

CREATURE : Patience ! For the Jedi it is time to eat as well. Eat, eat. Hot. Good food, hm? Good, hmm?

Moving with some difficulty in the cramped quarters, Luke .fits down near the.fire and serves himselffrom the pot. Tasting thP unfi1miliar roncnction. he is o/easantlv surorised.


LUKE: How far away is Yoda? Will it take us long to get there? CREATURE: Not far. Yoda not far. Patience soon you will be

with him.

(tastingfoodfrom the pot) Rootleaf, I cook. Why wish you

become Jedi? Hm? LUKE: Mostly because of my father, I guess. CREATURE: Ah, your father. Powerful Jedi was he, powerful Jedi, mmm. LUKE:

(a little angry) Oh, come on. How could you know my father? You don't even know who I am. (fed up.) Oh, I don 't know what I ' m doing here. We're wasting our time.

The creature turns awayfrom Luke and speaks to a thirdparty. CREATURE:

(irritated) I cannot teach him. The boy has no

patience.

Luke s head spins in the direction the creaturefaces. But there is no one there. The boy is bewildered, but it gradually dawns on him that the little creature is Yoda, the Jedi Master, and that he is speaking with Ben. BEN ' S VOICE: He will learn patience. YODA: Hmmm. Much anger in him, like his father. BEN ' S VOICE: Was I any different when you taught me? YODA: Hah. He is not ready.


LUKE: Yoda! I 'm ready.

I am ready. !... Ben! I can be a Jedi. Ben, tell him

Trying to see Ben, Luke starts to get up but hits his head on the low ceiling. YODA: Ready, are you? W hat know you of ready? For eight hundred years have I trained Jedi. My own counsel will I keep on

who is to be trained ! A Jedi must have the deepest commitment,

the most serious mind.

(to the invisible Ben, indicating Luke) This one a long time have I watched. All his life has he looked away... to the future, to the horizon. Never his mind on where he was. Hmm? W hat he was doing. Humph. Adventure. Heh! Excitement. Heh! A Jedi craves not these things.

(turning to Luke) You are reckless! Luke looks down. He knows it is true. BEN'S VOICE: So was I, if you'll remember. YODA: He is too old. Yes, too old to begin the training.

Luke thinks he detects a subtle softening in Yoda s voice. LUKE: But I've learned so much.

Yoda turns his piercing gaze on Luke, as though the Jedi Master s huge eyes could somehow determine how much the boy has learned. After a long moment, the little Jedi turns toward where he alone sees Ben.


YODA: (sighs) Will he finish what he begins? LUKE: I won't fail you I 'm not afraid. -

YODA: (turns slowly toward him) Oh, you will be. You will be.

(The film cuts away to various scenes and then returns to Luke and Yoda.) EXTERIOR: DAGOBAH - BOG - DAY

Luke sface is upside-down and showing enormous strain. He stands on his hands, with Yoda perched on his feet. Opposite Luke and Yoda are two rocks the size of bowling balls. Luke stares at the rocks and concentrates. One of the rocks lifts from the ground andfloats up to rest on the other. YODA: Use the Force. Yes...

Yoda taps Luke s leg. Quickly, Luke lifts one hand from the ground. His body wavers, but he maintains his balance. Artoo, standing nearby, is whistling and beepingfrantica/ly. YODA: Now... the stone. Feel it.

Luke concentrates on trying to lift the top rock. It rises a few feet, shaking under the strain. But, distracted by Artoo s frantic beeping, Luke loses his balance andfinally collapses. Yodajumps clear. YODA: Concentrate!


Annoyed at the disturbance, Luke looks over at Artoo, who is rocking urgently back andforth in front ofhim. Artoo waddles closer to Luke, chirping wildly, then scoots over to the edge ofthe swamp. Catching on, Luke rushes to the water s edge. The X-wingfighter has sunk, and only the tip of its nose shows above the lake s surface. LUKE: Oh, no. We 'll never get it out now.

Yoda stamps hisfoot in irritation. YODA: So certain are you. Always with you it cannot be done. Hear you nothing that I say?

Luke looks uncertainly out at the ship. LUKE: Master, moving stones around is one thing. This is to tally different. YODA: No! No different ! Only different in your mind. You must unlearn what you have learned. LUKE:

(focusing, quietly) All right, I'll give it a try.

YODA: NO ! Try not.

Do. Or do not. There is no try.

Luke closes his eyes and concentrates on thinldng the ship out. Slowly, the X-wing s nose begins to rise above the water. It hovers for a moment and then slides back, disappearing once . again. LUKE:

(panting heavily) I can't. It's too big.


YODA: Size matters not. Look at me. Judge me by my size, do you? Hm? Hmmm.

Luke shakes his head. YODA: And well you should not. For my ally is the Force. And a powerful ally it is. Life creates it, makes it grow. Its energy surrounds us and binds us. Luminous beings are we . . .

( Yoda pinches Luke s shoulder) . . . not this crude matter. (a sweeping gesture) You must feel the Force around you. (gesturing) Here, between you . . . me . . . the tree . . .the rock . . . everywhere ! Yes, even between this land and that ship ! LUKE:

(discouraged) You want the impossible.

Quietly, Yoda turns toward the sunken X-wing fighter. With his eyes closed and his head bowed, he raises his arm andpoints at the ship. Soon, the fighter rises above the water and movesforward as Artoo beeps in terror and scoots away. The entire X-wing moves majestically, surely, toward the shore. Yoda stands on a tree root and guides thefighter carefully down toward the beach. Luke stares in astonishment as the fighter settles gently onto the shore. He walks toward Yoda. LUKE: I don 't. . . I don't believe it. YODA: That is why you fail.

Courtesy of Lucasfilm Ltd., O Lucasfilm Ltd. All riahta "'..crved.


/voda 's training put emphasis on skills of concentration, full attention to the present moment, and belief in one's own abil ity. They are without question the skills and attitudes that dif ferentiate the average performer from an individual with extraordinary ability. We are not born with these skills; they are taught. Since they are acquired skills, the good news is that anyone can learn them. But the catch is, do you have the desire

and ability to take the necessary action tributes?

to develop these at

Yoda questioned Luke if he could finish what he

started. Can you? Make a commitment to yourself to do, not just try, the exercises that follow./ People want success, money, or their definition of the good life on easy street. They want it handed to them without any effort, energy, or commitment on their part. It has frequently been stated by high achievers that success is

1_9% skill andJO%

hard work. I experienced this first hand when I once offered a friend the means to earn thousands of dollars. John had the skill, but would have to apply himself for many hours to thor oughly learn what was being offered to him. After a brief at tempt to try and learn, he never practiced again and gave up . . . even though he knew I had just bought a new Nissan 300ZX through this technique. Let me explain more fully. As you think about this experi ence, ask yourself if you would have invested 80- 120 hours of your time to simply learn the mechanics of a profitable game? If you do not think you could apply yourselfthat long to learn a winning system that was being handed to you on a silver plat ter, your trading career will end before you've even begun. I had discovered my aptitude for counting cards at B lack jack when Kodak sent me to my first convention in Las Vegas. Fred, my friend and good Kodak customer, played Blackjack until dawn one night as I played along with him on a single twenty dollar bill. I had never played Blackjack before. My twenty dollar bill survived until dawn . I watched in fascination


as Fred's green and black chips grew and diminished. The house allowed my two dollar bets to float in and out of the game (Good thing too . . . two dollars is a very high element of ruin for a twenty dollar bank roll ! ). Meanwhile my customer gradually returned all his earlier winnings back to the house. As the night progressed into the early hours of the morning, it became clear to me that by simply betting when our six deck shoe seemed to be rich in face cards, my meager two dollar bets had a high return that helped me through the losing streaks. That observation is what really kept my original twenty dollar bill alive that night. I had little knowledge then of how to play Blackjack, but a lot of intuitive money management skill and luck. At the end of 8-9 hours of play I recall leaving the table

ahead 1 Oo/o... or with 22 dollars.

Fred walked away with a

$5000+ loss. This first experience at the tables was all it took

to whet my appetite to spend endless hours learning how Black jack should be played. I read and studied all the Blackjack Masters I could fmd when I returned home from the convention. Ken Uston, Stanford Wong, Bryce Carlson, Lawrence Revere, Julian Braun, and Dr. Edward Thorp, who originated the optimalfunit, or optimum number of units to bet given the probability of varying out comes in a favorable game . I studied. I practiced. I learned. I practiced some more. I had a computer program written to evaluate minor strategy variations as they applied to varying casino rules throughout Las Vegas and Reno. I counted down decks of cards until they were paper thin and dog-eared. The books all said you had to have speed. Uston defined the time limits and I practiced until I could beat them.

I

could count

down and remember a six deck shoe in less than 1 40 seconds. Eventually my old IBM-AT computer was churning money management comparisons and playing with the various strate gies against itself for weeks at a time. Soon I thought I knew which were the most favorable games offered in Vegas and how


to play them. (Sound like defining the probability of various market moves? Indeed it is. However, you can see that apply ing yourself so intensely can also appear to be obsessive behav ior. ) After much preparation, I was ready to count down six decks of cards if need be, alter the playing strategy as the game swings shifted between the player and the house, and then ap ply the correct money management betting strategy for a par ticular count to minimize the risk with my fixed bank roll. I was ready to take on Las Vegas. I arrived. I played. I lost! I was able to play Blackjack �ith lethal accuracy at home. It was confirmed by my computer testing. But in the casino, the outcome was entirely different. The noise, the distractions, the fear I felt when I was down, and the under betting as a result of that fear when the cards were again in my favor, all led to the complete loss of my bank roll.

Sounds like a trading room

What I had failed to learn was how to concentrate and main

scenario, doesn't it? It certainly was.

tain my level of skill within the casino 's environment, the only place it counted. I was not mentally prepared and lost the pro fessional card counters ' marginal advantage. Even though I only made a few errors per hour, that was enough. My old swimming coaches would probably not have been surprised to know that it was their techniques that solved my concentration problems and fears in the casino environment. The same meth ods used to excel at Blackjack apply equally to trading. So I went back to work after my first loss at the Blackjack tables. This time to train my mind. I practiced with blaring music and noise in the background. I learned to carry on an uninterrupted conversation with a friend as they dealt through the six decks of cards as fast as they could. People told me I was crazy to even try again.

winning was more than fun, it was exhausting work. Black

The next trip to Vegas was very different. Soon I learned

jack is very mechanical, hard work, and actually boring as you


play each hand mechanically to a predetermined set of rules established by statistical outcome. For all my practice hours and hard work, Las Vegas showed its appreciation by barring me from several of its finest Casinos . It became nearly impos sible to sit down at any table. Eventually I even went to the extreme of enrolling in a class for dealers so that I might learn what dealers are taught to look for when screening for profes sional card counters. I learned not to show large betting swings and to increase the number of hands played at a time, rather than bet big on a single hand when the game was in my favor. Sound like an introduction to portfolio diversification and money management? It certainly became the foundation of a new ca reer in trading. Eventually the welcome mat in Las Vegas was pulled, and around that time a friend introduced me to a futures contract. I turned my attention from counting cards to trading cars. I tried to teach several friends how to play Blackjack, but each time when it came down to taking the time to count down decks of cards, they all quit. Do you have the energy and persistence to pursue your goal step-by-step? Let's see . . . go for it! Long after I had stopped playing Blackjack and was deeply engrossed in my career as a trader, I met an individual after work that I had met before. We were discussing trading and money management over a beer when he surprised me by ask ing: "Have you ever played Blackjack?" I took the easy way out and just said, "Yes. " This individual was always thinking, always pushing to learn. His drive for information soon had me sharing my views about the similarities between Blackjack, money management techniques, and trading. One weekend at a seminar in Atlantic City, we ran into one another again . We decided to venture into a few casinos together.

Sure

enough, within minutes, the "friendly" pit bosses would step over and ask me their familiar "routine" questions. A fter the


first shoe of cards was dealt, we adjourned to a seminar room to go over more extensive details about Blackjack strategy. We both came to the conclusion that it was a game in which you could control the outcome with skill and preparation, but the work required for defining strategy through back-testing, table diversification, and money management was just too similar to our jobs. It was not a stress release, as it was just more of the same. We wanted a break when we removed ourselves from the financial environment. That's the reason I have no interest in playing Blackjack today. My Blackjack partner on that oc casion was the Senior Technical Analyst of the Fidelity Man agement Company in Boston, the largest asset management corporation in the United States. There is an important lesson to be taken from those Black jack tables. Regardless of the skill level we acquire for playing Blackjack, or trading, without an ability to concentrate fully, we limit ourselves. This is very similar to defining the outcome associated with a trade before establishing the position. If 'x' expectation has a 60o/o probability ofhappening, then the prob, ability for that outcome to occur has already been reduced by

40%.

But now consider this. If an individual 's skill level is at

a high 80%, and then he only gives that ability 60% of his con centration, the outcome will be the same. That skill level just dropped from 80 to 48, a 40% reduction in capability.

A trader with lesser s/dll and ability, but with greater concentration and focus, can and will outperform the more s/d/led trader. So how do you go about training your mind? The first step in training your mind is to adopt a tangible concept of what the mind is. Don Talbot described the mind as a radio. This is because our minds are somewhat like radios, channel surfing

constantly through different stations. Some stations will be much stronger than others, while others will be weak and then gradu ally fade in and overpower the stronger station we had been listening to first. These multiple stations are always transmit-


ting just under our consciousness, as it is our unconscious, the Basic Self, that has the ability to program all the frequencies and transmit to open channels. The radio analogy is an exceptionally good one because of the association with waves. As radios receive sound waves, science identifies our Basic Self as propagating the Beta waves of our brain. The Conscious Self would be our Alpha waves. (Science still hasn't figured out at what frequency to find the Higher Self. That one is being left for priests to define.) As our attention wanders to these subliminal thoughts, the interference or distractions they pose can significantly diminish our ability to perform, to stay focused on a single station and perform to our fullest potential. If you have ever lived in the Caribbean or Florida, it is similar to when the sun goes down at night; Cuban stations become much stronger and overpower local stations or cause extreme interference. It is this same background noise within our minds that creates the physical stress knots and emo tional anxieties when we try to ignore or suppress the distrac tion. Attempting to ignore a distraction that pops up in our mind, or an external distraction such as a noise, will consume more energy than if it is simply acknowledged as being present. We need all our energy to focus on the abilities and skills we are trying to use. Distractions are a serious energy drain. Through training we learn that the flow of distracting thoughts will never leave us. However, we can learn how to identify the distraction and then utilize the most effective technique to al low ourselves to let go of it. The key is to identify and then let go. The first step is identification ofmind distractions. Through

conscious identification we can then eliminate the repetitive interference of the same thought. The second step requires dif ferent techniques based on the type of distraction. We will dis

cuss these techniques shortly, but the bottom line is that through the appropriate technique we can learn to live with the distrac tion without it having a negative impact on our pcrfonnance.

AER ODYNAMIC TRADING 1 00

The key will be to identify it,

accept it, and then let go of it.

This is the same principle as scanning past a radio station you don 't want to stop and listen to further. The effort we expend to suppress and ignore inner distrac tions is a maj or source of stress that accumulates and remains as an uncomfortable nagging anxiety within us. The anxiety

fully acknowledged. Left unattended, the stress createsphysi

itself becomes a distraction until the originating cause is more

cal knots in the muscles of our necks, chest, and lower back.

Eventually these knots become extremely painful, and we at tempt to.put a bandage over the problem by seeking the help of a chiropractor, physical therapist, or some other pressure re lease. Pressure valves are en�rgy releases for the body which

Our suppressed and sequestered thoughts, concerns, and fears

temporarily reduce the pain.

form energy blockages. Don Gambril, a former United States Olympic Swimming Coach, explained this concept of energy blockage within ourselves in the following way. Imagine a garden hose with the water pouring freely through it. Energy flowed through us this easily when we were small toddlers. We did not judge; we just accepted things as they were in our physical world. We would focus and then just let go as we moved on to something new. Now imagine a garden hose with a stone in it. Tremendous water pressure builds behind the obstruction and the little water that does pass around it comes out ineffectively and without much control. The stone in the hose is similar to an obstacle in our mind. It robs us of energy, and there are only a few solutions. We re move the stone. We find an alternate way to release the pres sure caused by that obstacle, such as turning off the faucet, but that minimizes the energy that should have been directed at the primary task at hand. The pressure release reduces the associ ated discomfort, and we therefore associate feeling better with that activity. The relief is only temporary. It is easy to associate

Part Ill: Inner Aerodynamics 101

the adrenaline rush associated with racing cars, other high risk sports, the emotional swings of a horror movie, or any physical activity as successful solutions to minimize our inner discom forts. The displaced, or temporary, energy release is incorrectly assumed to be a release from the original discomfort. It does help, but it does nothing to break down the original obstacle. This is similar to finding an alternate route for the river that is

trapped behind a hydroelectric dam. The energy is lost, as is the water if the pressure is released through a creek upstream.

The obstacles within our mind rob us of energy and diminish our ability to concentrate. When Luke Skywalker was doing a handstand while Yoda was perched on his feet, the scene offered a visual representa tion of striving for inner balance. Distractions, in this case the beeps from R2D2 directed at Luke about the sinking X- Wing, serve to represent any external or inner distraction capable of breaking our concentration. The phrase "Try not. DO. Or do not, there is no try, " means you must give 100% to the present moment. If you are trading and thinking about other unrelated market scenarios, or thinking about the argument you may have had with a spouse as you left home that morning, you will most likely have a trading loss that day because your mind is not on what you are trading. The mind is also a sneaky trickster. It can make us believe that mi��onceptions are our reality. As an example, if the Basic Self has decided you will lose today,

today,

or do not deserve to win

guess what the outcome will be? That' s right, a loss.

That's not the only trick it plays on us. It can also mislead us into thinking we are dealing with inner obstructions and stress effectively, when in actual fact we are building immense inner dams of obstacles that interweave and reinforce one another. We are misled again into thinking we are reducing stress by minimizing the amount of work we do for a period of time. This is similar to an alternate way of reducing the pressure in


the hose with a stone in it: reduce the amount of water forced through the hose. We actually do the same thing by reducing the number of markets we might trade that day, maybe go on a vacation for a week, or find a way to temporarily change the pace of our normal routine. Just like the hose however, as soon as the water is turned back on full force, the pressure behind the obstruction returns. Left alone, the hose finally splits . . .just behind the obstruction. We break down. an

Coaches that get outstanding results have an ability to train individual to filter out mind noise and erase inner obstacles

or anxieties that cause these energy blocks and stress points. The approaches are far more subtle than the highly structured workout schedules they prepare for physical development, but they are no less demanding. Just like it is easier to work on the technique of your backhand in tennis, it is easier to work on the optimum period for an indicator than it is to change the very inner foundation of who we are so we can execute the tech nique better. The coaching that is offered to change an inner attribute is usually offered privately at the time it is most needed for that individual. Never in a group setting. It was not until later that I discovered that all these techniques had been a part of everyone's training schedule, just asked of us at different times. You are about to prove to yourself through the following series of exercises that our ability for performance excellence comes from our Basic Self, our unconscious mind. One of the most important elements to recognize about our unconscious mind is that it is unable to differentiate its reality from the real ity of the Conscious Self.

All the reason and logic offered by our Conscious Selfto argu,e convincingly that we have the abil ity to trade or accomplish a task and win will be sabotaged if our Basic Self, our inner ego and self-image, does not also agree we are capable ofachieving or doing that same task. It means if you think you can allow your Conscious Self alone to

Part III: Inner Aerodynamics 1 03

motivate you through elaborate back-testing of indicators to be a successful trader, you have another thought coming . . . you' ve just set yourself up for failure. It is the Basic Self which always wins, not our Conscious Self with its long string of logical rea sons for success. If our inner child refuses to go along, it will prevent us from succeeding. Have you ever entered a trade only to say to yourself after a loss: "I can't believe I did that same thing again! " We rarely learn things the first time around and need time to change. This is especially true when developing our inner skills. These are much more challenging than learning about the mechanics of a technical indicator as dictated by the Conscious Self. Our un

conscious mind learns and accepts change slowly, and as expe

rience brings fear into our trading, the "game" becomes more com_plex for our Basic Self. ;-Once we have a certain level of technical ability to trade, our problems associated with trading losses are usually related to an inner weakness rather than a lack of technical ski

YSadly,

most traders never do get beyond their suspicions about their technical indicators or the fundamentals when they fall short.

But you are already miles ahead ofmost traders by simply rec ognizing that you need to evaluate your inner sldllsfirst. An introspective evaluation is much harder to do and re quires a lot of patience. It takes some understanding about the process itself in order to be successful. The following excerpt from "An Autobiography in Five Short Chapters" by Portia Nelson is an ideal analogy for the way we learn and adapt to changes. Chapter One: I walk down the street and come to a deep hole in

the sidewalk. I fall in; I feel lost, helpless, but it's not my fault. It takes forever to find my way out.

AEROD YNAMIC TRADING 1 04

I walk down the same street and come to a deep

Chapter Two:

hole in the sidewalk.

I pretend I don't see it, and fall in again. I can't believe I'm in the same place - but it isn't my respon sibility. It still takes a long time to get out. Chapter Three:

I walk down the same street and come to a deep hole in the sidewalk. I see it - but I still fall in. By now it 's a habit. But now my eyes are open; I know where I am. I take full responsibility; I get out immediately. Chapter Four:

I walk down the same street and come to a deep hole in the sidewalk.

I walk around it. Chapter Five: I walk down another street. Our B asic Self, the unconscious self, likes familiar patterns and routines. Familiar routines become habits, and we cling to them because the familiar is a comfort to us. We cling to the familiar even when we don't like the situation we find our selves in. We may know a job is not right for us or a relation ship makes us feel uncomfortable, but we stick to it because we know what to expect. Change means we have to abandon the comfort associated with knowing what to expect and jump into the frying pan and pain of the unknown. Change doesn 't get easier; the process becomes easier as we learn to accept the progression and learn to recognize its stepping stones. So be patient with yourself. . . but relentless in your pursuit to master the skills that follow.

1 05

Distortions of Reality and Ability The Golden Eagle A man found an eagle 's egg and put it in the

nest of a backyard hen. The eagle had hatched with a brood of chicks and grew up with them. Believing himself to be a backyard chicken, he clucked and cackled. He thrashed his wings and flew a few feet into the air, just like a good chicken. He scratched the earth for worms and insects. Years passed and the eagle grew old. One day he noticed a magnificent bird soaring in the heavens in graceful majesty.

The old eagle gazed up in awe.

"Who is that?" he said to his neighbor. "That's the eagle, the king of birds, " said the neighbor. "Wouldn 't it be wonderful if we could soar like that up in the hea vens ?" "Don 't give it another thought, ,, the chicken replied - "you and I are chickens. " So the eagle never gave it another thought. He lived and he died thinking he was a backyard chicken. -Anthony Demello, The Song of the

Bird


In this phase of our training clinic, you will be asked to· stop and think about what your perceptions are about yourself. Are you also an eagle that has become comfortable within the con fined boundaries of a chicken coop? The eagle's spirit lives within each of us. Sadly, much of our environment and early conditioning teaches us to suppress that spirit. This is an ex ample: if as a child, we are told that we aren't good at math, then it is not long before we begin to believe it and assume the role of a math incompetent. We assume the role that our Basic �..

Self feels most comfortable with, even if that image promotes an image of incompetence. Darien, Connecticut is a small, very well-to-do, preppie, Ivy League community on the shore of Long Island Sound. Before you think I'm throwing darts at this town, know it was once my home. Darien offers a beautiful country setting of elegant homes built throughout twisting country hills covered with thick New England forests. It is a dramatic contrast to New York City, which is only an hour away. The entry level for purchasing a home within this community begins near $300,000. The aver age sale price is

$64 1 ,770

(June,

1 995

YTD). It is similar to

nearby Greenwich and shares the humble honor of apparently having the highest income per capita in the United States. It is within this setting that the story of the eagle was fully exempli fied at one of the many parties in Greenwich. It is fascinating to listen to the teenagers of this community, normal American teenagers with all the usual insecurities o f who they are and what they will do when they grow up. The difference between these adolescents, and others of a different geographic area in the U.S., is the image they have of them selves in later years. They were born eagles and know it. Able to succeed at any venture they decide to choose. Success sur rounds them. At one party I became fascinated listening to these teenagers . One teenager talked about which industry she were considering to

manage,

or which Wall Street firm he

Distortions ofReality and Ability 1 07

wanted to join because of

the firm s

financial potential. An

other was waiting to hear if a professional hockey club was going to make him an offer, so he could then turn down the first contract offered by a second string team. One teenager didn't discuss how to buy a car, he wanted to know how to setup a network to

deal in antique cars.

There was no discussion of

smaller objectives or of potential obstacles in their way. If you brought a more realistic progression of steps into the conversa

tion, the milestones were rapidly dismissed as details to be ironed out later when the implementation plans were fonnulated. Those teenagers presumed success for themselves, and they were be ginning to act out those roles of success. Greenwich and Darien are aftluent communities, but many families in those communities are now house poor after the staggering game of real estate hopscotch that occurred through out the affluent 1 980s. Many Wall Streeters, with those huge bonuses from the Reagan years, propelled Fairfield County real estate values skyward at a rate of 2% per month until the bo nuses dried up in 1 987. Property prices then dropped as much as

40%. That recession created a negative equity for many fami

lies with million dollar homes. They (make that 'we') kept rolling over their entire equity and savings into successively higher priced homes as a means to protect capital. The real estate implosion literally wiped out families' entire savings. (Similar to the bubble bursts in Tokyo, California, or the oil patch of Texas to the Mountain States.) So for many teenagers, only the image remains. The families no longer have abundant cash and riches to go out and buy these dreams for their kids as they once could have. Those teenagers knew economic changes had affected their families, but not their young dreams . In the face of adversity, they remained confident of success because

of the roles played out around them. Sme, like all kida, some of

these teenagers will elect to shun the opportunities they have

and retreat into a period of denial or rejection, but their inner


image of themselves will not change. They will always be eagles with the ability to step out of the chicken suit and slip back into the role of a successful person, whenever they choose to reas sume that role and image. Most of us are eagles. (If you are trading, you are an eagle. You didn 't get there by being a chicken.) Still many of us were raised within the chicken �_op of our own design. We limit ourselves because we only see ourselves playing one role in life, the role defined for us during our early years. Our image and the role we choose to experience in life is to a large degree dependent on

what we allow ourselves to experience. This is

dependent upon how deserving of success we feel we are. Early in my swimming career, a coach of mine worked on changing the poor self-image I had about my ability to do any sport. I had always been overlooked by big name coaches until high school when a National coach commented that I could use my arms to swim. What a concept! His attention greatly im proved my speed and technique in practice, but I fell short in competition because I did not have a winning self-image at that time. The same problem occurs for traders. Some traders are suc cessful up to a certain profit level, and then they start to experi ence a progression of losses or one big hit that wipes out a string of small winners. The Basic Self will unconsciously sabo tage our success if our growing profits are in conflict with what we unconsciously believe we deserve. That sense of self-worth will dictate the level of ability we will attain. Once a realiza tion dawns within us that our self-image is nothing more than a concept, the path ahead becomes unlimited and unrestricted. The reality is that work and practice will lead to success in trad ing, golf, business, whatever. The boundaries for attaining the goal we set for ourselves are genuinely confined by our con cept of self-worth. For this reason trading skills are insepa rable from self-image.


The gap between knowing and doing remains the weak link in most of our lives. Knowing what to do is usually not the problem; it is translating intentions into action, and resolutions into results. A frequent lament by those who conduct trading seminars is that traders can 't pull the trigger. At the very mo ment these traders should enter or exit a trade they freeze. As traders, we may wish for the results, we may be confident in the outcome, we will even have a pretty good idea of the best method needed for executing the trade. But we wait for ''permission" from some inner voice to take the necessary action. As a result many individuals wait until fear, self-doubt, and their insecuri ties dissolve. They never do. The motivation and conviction needed to take the necessary action doesn't step forward until our inner adversaries go away. They don 't go until we' ve faced them. We know that our brain has two hemispheres that perform different functions: a linear, rational left brain, and a more ho listic, imaginative, and creative right brain. The specialized cells of the brain allow us to store data, to compare and dis criminate, and to perform the miraculous number of processes we call thinking. We can consciously will ourselves to calcu late the Fibonacci retracements, remember an incident from the past, or recall a hypothesis of a potential intermarket relation ship. We have to contend with unintentional thoughts that are just below our field of awareness. It is these thoughts, or back ground noises, that we need to learn to control. Often these thoughts carry with them a negative emotional charge . They are the anxieties and old images we' d rather not think about. These thoughts have the power to lift us up, bring us down, promote a feeling that we are trading with effortless

case,

or

freeze us from taking action as we become captive to a moment of indecision.

These random thoughts and images reflect a

natural discharge of stressful impressions and memories. Our

AERODYNAMIC TRADING 1 10

Basic Self cannot tell which images are real or artificial, so we end up reacting to these artificial images by creating physical tension and imbalance. Our Conscious Self then interprets our world through a bi ased filter. This is what causes us to misread or misinterpret the meanings of real events and makes trading far more problem atic and complex than it already is. We confuse, misunder stand, misinterpret, and find it increasingly difficult to identify what is reality and what is Disneyland. The trap is that the mind will manipulate abstract concepts into a web of illusions that have little or no bearing on reality. What is needed is a skill that allows us to filter, or down play, the mind's incessant chatter so that we no longer pay attention to it. We still have the thoughts. We still have the beliefs and associations. We still interpret and make value judgments, but we don 1 mistake

these thoughtsfor reality. Pre-conditioning can thoroughly mislead us. My Wall Street commute had numbed me to the common day occurrences of swearing taxi cab drivers, gestures from seemingly otherwise passive people, or audible abuses when driving anywhere in or near the city. When I moved to a more rural community in Georgia, there was a period of adjustment to be made within this new culture. One day, driving toward the North Georgia mountains,

I

approached a narrow bridge on a winding road.

As I approached the last bend in the road prior to the bridge, another car came around that

turn .

As we passed, the driver

made gestures with his arm out the window and yelled, "HOG! " He quickly drove by, and

I

became upset that he seemed so

angry with my driving. I was clearly on my side of the road and had not taken, or hogged, more than my fair share. Maybe it was my New York plates that so irritated him. Without more time to think, bridge.

I

I

made the last sharp turn towards the narrow

narrowly missed hitting the largest hog I had ever

seen in my life ! The immense porker was standing right in the

Distortions ofReality and Ability 111

middle of the single lane bridge. That driver 's one single word warning had produced a string of emotions, artificial images, and false asswnptions. The reality? There was a pig in the road - a "Hog ! " I had attached all the other words, connotations and incorrect meanings around that word because of my prior conditioning in New York. Events are just that - events. Depending on what is inside us, we can feel differently about that same event. Some sunny days when I was walking in New York, the city was beautiful. The architecture, the people, the hustle of the city, it was all exciting. On a different sunny day, all I could see on the exact same streets were the homeless, the garbage, the needed re pairs, and foul smells. On my negative days, the city was bro ken down and filled with impersonal cold faces rushing by me. These very different perceptions would both occur on sunny days. Weather was not a factor. The difference depended on what was happening inside of me. We see things not as

they

are, but as we are. However, a hog is just a hog, as a buy order is simply that, a buy order. We have to discard and dump all the peripheral baggage that comes along with one word . . . buy it, or sell it, hog, or HOG !

Objective: Separating Virtual Image from Reality. Purpose: To identify what is important to you in the present moment and deserves your attention, versus what should be viewed as a distraction.

Exercise: Ask yourself these few simple questi ons when unconscious mind chatter begins to come into focus as a distraction. By asking these few simple questions for each distracting thought while you are trading, you will be able to improve your concentra tion.

AER OD YNAMIC TRADING 112 I

.

Does knowing this help my position ?

Answer no, promise yourself to come back to it at another time. 2 . Does knowing this right now make a difference to my position? Answer no, promise yourself to come back to it at another time. 3. Can this help improve my relationships, help me

support my family, reach my goal, or add to my happi ness? If the answer is no, put it aside for now. If the answer is yes, re-ask the second question. This shortens the time horizon to the here and now. By acknowledging the distraction and then telling yourself it can be given attention at another time, you reduce the stress associated with that distraction. If you try to suppress it, the inner child will throw the concern back at you, and you won't be able to temporarily shelve the distraction. You'll end up having to deal with an emotional storm from your unconscious self that will demand attention when you can least afford the

distraction. These inner temper-tantrums can yield disastrous trading results.

In Chapter 2, "The Three Selves," I recalled breaking my finger in a swim meet. Pain, real physical pain, becomes a by product of stress when we are trading. It is a very powerful distraction that demands attention. You can use the same ques tions in either situation. When I broke my finger it was not life threatening, it served

nothing I could do about it short of stopping. Breaking a finger

no purpose to focus on it in the middle of a race, and there was requires attention, but by accepting the discomfort, I could then


let go of it by changing the direction of my focus. I promised myselfthe problem would be given my full attention in the very near future. Your mind cannot differentiate between emotion and reality. After the series of questions listed in the previous exercise, I focused on what was important at that moment. I literally did not feel the pain in my hand again. When I stopped however, I saw I had a compound fracture, a small bone was poking through the side of my finger, and it certainly became the center of my focus then. There was little doubt of the reality after actually seeing the problem. Had I seen the reality moments before, I would not have been able to filter out the pain. Unseen, my mind could trick the body long enough to play the game and carry on. Those three questions are very powerful. You can block out of your mind just about anything. Just tell your Basic Self you will give the matter your full attention later. Continual repeti tion of a thought or image in your mind cannot be permanently pushed back into your unconscious and shelved. You eventu ally have to resolve it. Then when you do, give it your full attention. Be prepared to try and understand what your Basic Self is trying to bring to the surface of your awareness. Once fully addressed, you have just permanently removed one of the obstacles in the hose of your psyche. The sensation you will feel is like someone has just released the pressure on a pinched nerve in your spine. The relief is immediate, but soon the pres sure builds again behind the next inner obstacle that is encoun tered.


1 15

Expectations and Other Mind Traps There is nothing either good or bad but thinking makes it so. -Shakespeare

The last chapter demonstrated how we could be significantly misled by our preconditioning, thereby making it difficult for us to identify what is real. We addressed distractions that break our concentration and have little or no bearing on what we are trying to accomplish. To help identify what is most important and relative to the current moment we asked a series of ques tions that act as a filter. The method we will explore next takes a different approach - it will transform the distraction, not just temporarily filter it. Filtering out irrelevant thoughts that come to our attention at inappropriate times is a method that is effective for isolated or random thoughts. Filtering is not effective when we unknow ingly fabricate self-destruct mechanisms, or mind traps, that sabotage and limit our abilities. Let's take a look at one exceptionally damaging mind trap: expectations. Expectations create a mental anxiety that imme diately defines a limiting and inflexible boundary - a perfor mance standard. The trader who hits a home

run

one week is

frequently expected to repeat that performance the following week. The expectation defines the platform for failure because anything less becomes a disappointment. An expectation is an extremely inflexible standard which allows no room for alter natives.


Another example of this particular kind of trap is defining a spec ific expectation for a year end return. Anything less than that expected return can only be interpreted as a performance failure, regardless of the fact that a profit is just that: a PROFIT ! If you didn 't reach the precise target you set for yourself, then you feel a sense of disappointment. Does that make any sense if your primary market spends the entire year in a consolida tion, or contracting triangle pattern, as the S&P did in 1 992? You will have no control over this situation. In such a market environment, a 1 0% return could be viewed as exceptional, yet an unrealistic bogie of 20%, set at the first of the year, would have meant you failed to reach the target. You are left having to justify the lower return, by blaming it on the market's low vola tility, rather than patting yourself on the back for profiting in an environment in which most trend-followers would have been losers. In this situation, you encountered an unpredictable fac tor that reduced the potential for meeting your expected return. That's hardly failure. We have to leave ourselves some flex ibility for events and circumstances we have no control over. The self-constructed mind trap of a standard setting expec tation is most effectively dealt with by broadening the way we express it.

Here 's how to go about doing this. We enter a

trading day with an expectation that the market will advance to a specific target. This expectation provides us with limited odds for success as there can only be one successful outcome. The market has to advance, and there is no other acceptable out come as we defined it, within this expectation. By expecting the market to rally right from the open, the disappointment may well throw us off balance when that expectation fails to occur. Should the market first drop, then progress towards our target, we may trade the move poorly because our inflexible expecta tion did not allow for an alternate route towards our target. Our stop may have been executed based on our expectations for an immediate rally, and then we make matters worse by getting

Expectations and Other lv1.ind Traps 1 17

upset when we fail to reestablish the same position as a bottom forms. We waste energy and create a distraction for ourselves fur ther as we stew over an unexpected market open that caused a loss, that would have been a gain if.we had only done nothing. (Back to the could-a, would-a, should-a theme song.) As we fret over a poorly placed stop (instead of viewing it as an op portunity to learn after the market closes), we then fail to ob serve what the market is presently doing and miss another op portunity. (You can't trade the present because you are hung up on the past.) This offers an example ofwhen to apply the first exercise in the prior chapter to trading. Does an unexpected market open that has now reversed have anything to do with your opinion that a long position should be established? The answer is likely no. Drop the excess baggage, move on, and don't stew over the open. However, you would not even have to attempt to shed the baggage and the distraction caused by a disappoint ing, or unexpected open, if the expectation had been defined as a preference. Two easy changes will remove the boundaries and accom panying poor odds associated with an expectation.

First, Expect nothing, but be prepared for every potential outcome that may develop.

Second, Rewrite the expectation as a preference. Transform it into something less restrictive and con fining. When we expect something to turnout in a precise and par ticular way, we so severely limit the possibi l ities that the odds become overwhelmingly against us. An expectation becomes our Achilles heel by preventing us from remaining flex ible.

Expectations are particularly damaging because they make it

. AER ODYNAMIC TRADING 1 18

very easy for us to attach our ego to that expected outcome, thereby leaving us vulnerable to disappointment when it turns out differently.

OK, so here 's how to neutralize this mind trap. Change "/

expect the market to rally towards an objective of 556. 00 ", to ''/ would prefer the S&P market to open strongfrom 550. 00, but a decline down to 548. 75first will notjeopardize my objec tive of 556. 00. "

The target has not changed. Our mind however has adopted an attitude that allows the price objective to be attained in vari ous routes for getting to that level. By defining a range to work within, we neutralized the stress and anxiety that accompanies the need for a single outcome. It is similar to being told you have to match all six numbers on the lottery ticket to win, and

the six numbers have to come up in your exact sequential or der. The next exercise helps transform expectations into some thing less restrictive. Work through the following list of mind trap examples and neutralize them by changing them into pref erences. Objective: Replacing Expectation Statements with Prefer

ences. Purpose: Preferences are less restrictive than expectations

and therefore have better odds for successful outcomes. Exercise : Rephrase crippling expectation statements into

empowering preference statements. Expectation:

Out of ten trades I only had eight win

ners. Mind trap . . . Sorting for the negative. This is easy to do. This expectation is subliminal but shows you expected ten perfect trades, and nobody bats a thousand.

Expectations and Other �ind Traps 1 19

Less Restrictive Preference: I had eight trading wins because I did "x " correctly. The other two trades could have been improved by doing "y. " I 'll try that next time. You just positively reinforced what you did right and used the less desirable trades as a learning opportunity.

Expectation : The market did notfully reach my tar get. I 'll keep the position until the level is attained. The expectation has setup an either/or mind trap. Ei ther you will be right, or you will be wrong. There is no allowance for shades of gray.

Less Restrictive Preference: The market has ap proached my target at 'y, " I 'll begin to scale out of this position and take some ofthe profits ifthe market struggles at "x " level. Expectation : I expect to achieve and produce x% by my next closing quarter. Big trap . . . our value depends upon how much we achieve and produce, and there fore, we must achieve "x" or we will be worth less in our own self-image.

Less Restrictive Preference: I wouldprefer to be up an additional 15%, but 7% would be good in a low volatile market scenario. Expectation: I have been told I 'm not a good trader in the Lumber market, but our analyst has identified a big trade coming. The trap is that an expectation defined for you has become a self-defeating thought.

Less Restrictive Preference: I know J 've been /a beled a poor producer in the Lumber market. I ean continue to fit into this role definedfor me and havt' limited success, or consciously recogniz� I ha ve no ..


interest to trade a secondary commodity, or I can im prove my knowledge about the keyfactors that move the lumber market. This one is the most complex. Either you prefer to master the Lumber market or you stop trading it. You can't operate under someone else's expectation. Role playing into someone else's expec tation is replaying the story of the eagle and the chicken coop.

121

Focusing/Concentration You must be present to win.

So far in our training clinic we have become familiar with two techniques that help to minimize distractions so that we can improve our ability to focus and concentrate. Now we need to home in on the specifics of what focusing is really about so that we can develop it further. Concentration refers to the degree to which we are able to focus our awareness. Like telescoping a camera lens to isolate a face from the crowd, we can focus our minds on a single task. Our ability to focus our attention over a time interval is our attention span. Both our ability to concentrate and our atten tion span can be improved with practice. We can sustain a high level of skill over longer periods of time by breaking the task down into much smaller components. It becomes easier to concentrate when we have less to focus

on. As an example, a sixty-four year old runner was asked by a

reporter when he crossed the finish line of a 1 00-mile race, "How did you run such a long race?" He replied, "I didn 't run a hundred miles; I ran one mile . . . a hundred times." What a wonderful example of how to change our perception when it is overwhelming to focus on an entire task. An ability to focus means we can concentrate all our thoug'1 ts and actions toward one small aspect of the present moment.

We won't let our minds wander and split our consciou s nes s

into fragments like refracted light through a glass prism. I f we

focus on a + l So/o to +20% gain for the year. that di stant goal could appear overwhelming in relationship to the gain/loss of


today's trade. (Note that the original expectation for 20% has been altered to the preferential range.) If we are currently in a net hole of -6% for the year, that distant year-end bogie could

be especially unnerving. However, if our goal comprises a much smaller step, it i s easier for us to focus, and we are able to direct our attention with fewer distractions. We increase our odds for success by making smaller steps in the right direction. We become right more often. These small winners develop a trend of consis tency and show up in a growing equity curve. Centering is very different from concentrating, or focusing. Centering is the thought process of understanding how every aspect of our trading contributes to our overall development and growth as a trader and person. It is a kind of concentration that is all encompassing and will be discussed further in the next chapter. Focus, on the other hand, is the process of narrowing our concentration in order to eliminate specific unproductive or distracting occurrences. It is the method we use to fine tune our span of attention so that we can stay in the moment. Most of us focus and trap ourselves within a time frame that has no bearing on the present. We put too much of our atten tion on past and upcoming problems. We get hung up on a trade we missed, or a painful loss when our indicators showed us a similar pattern. We stew and worry about what would happen if this individual or that government did "x." There is a big difference between preparing for different scenarios that could influence and increase the risk exposure to our position, versus letting those potential scenarios haunt us and distract our attention when we are ready to execute our order to buy or sell. The only way to net a successful outcome, or positive return, is to focus on the present moment. When the time comes to execute the order, you should know that you have prepared for the various outcomes to your very

Focusing/Concentration 1 23

best ability. Then act. Put your entire focus and attention on the mechanics required to establish the position. Think less and act more. If you have excessive concerns about an indica tor giving the wrong signal, you may have to go back to rein force your confidence that it is still a statistically valid winner. The negative return that occurred was only an isolated outcome. Take the time to put that failed indicator signal behind you by back-testing similar results until you are once again comfort able. Otherwise you' ll get stuck every time you encounter a situation that seems similar to your nagging doubts. When the time comes to establish or close a position, that is not the mo

ment to stew over an alternate outcome because of a poor per formance on a prior trade. Concentrate on what you have control over. You can't con trol government intervention, comments from other traders, the weather, late train schedules, or the traffic you had to fight on your way to work that morning. So focus on what you do have control over- your own performance. Athletes who perform optimally are totally engaged in the moment. I cannot empha size this too strongly. It is this single-mindedness which ac companies excellence.

You must be present to win.

When we are trading well there is a flow, an ease which allows us to become oblivious to what's around us, and we become fully absorbed in our actions and thoughts for the mo ment. The flow and ease we feel has no room or thought for guilt about past performances, or fear of future shortcomings. This oneness with trading or a sport yields a "high," a sense of being in a time warp. It is a flowing state without any con scious need to control, or think; we react and live in the present. In actuality we do not think within the present time frame, only

act. Here's why.

We all have varying degrees of concentration. The constant flow of mind noise cannot be entirely filtered. Some of the background radio stations of our mind do get heard slightly,


but they can only broadcast a program about the past or fu ture.

We cannot possibly think about anything in the present

moment, only act. A wandering .mind draws our attention to the past or future; it always moves our attention away from and out of the present. This in tum diminishes our performance by diverting our attention from the action at present and also dissi pates the energy we have for applying our skills. Filtering and transforming distractions are two methods to ""eOur focu imp;ov these methods specifically increase

(

�

our ability to concentrate, visualization offers the means to train ----.-.. -- .,_ .

or program your Basic Self. In the story of the eagle in the chicken coop, the eagle had an image that he role-played throughout his life. Through visualization he could have cor rected his inner image and experienced how to soar, even be fore spreading his wings to fly. Visualization is important, but we need to temporarily delay describing this technique until The amount of time we are able to completely immerse our

we 've prepared a proper background.

selves in the present moment can be extended with practice. Practice itself takes commitment and time. By practicing (and we will go into details how to practice in a few pages) we are actually learning to allow our Basic Self and Conscious Self to operate in balance. These two very different selves have to come to some kind of an agreement. The flow and effortless resource of energy is the sensation we experience when the Basic Self, our unconscious, is in full agreement with and sup ports our Conscious Self. As a result we make our best deci sions and tap our fullest potential. Those who have been fortunate to have an exposure to East

very ancient wisdom of the Chinese I CHING, which means ern philosophies and culture will already be familiar with the

'Book of Changes. ' The Chinese revere the I Ching and ap

proach it as if it were a very wise person. If it is treated like a person, its replies are like personal replies. As an example:


It is of great importance to achieve an inner peace which will allow you to act in harmony with the times ... Hold your thoughts to the present. . . Actions that spring from this attitude will be appropriate. - I CHING no.52 No matter how much we practice and learn to focus, or how strong-willed we may be, our minds will always wander. It is impossible to remain permanently focused, but it is not neces

sary! Look for opportunities to give your mind a break from the rigors and stress associated with concentrating. When I was playing Blackjack, I had to practice to increase the length of time I could play error-free. There was always some point in time when I would begin to make errors. _Jh� princjpl� of dj-

m i!ll.�Jii�-��!!!rn�. �PPH�§.-�Q �y - �ct��i�. It certainly applies to __

Blackjack and trading the markets. I knew I had to walk away

from the tables after three hours of card counting to take a break. That was my limit. After that time I would only get sloppy, lose my concentration, and give up any advantage I had. When the dealer shuffled the decks, I learned how to take short effective breaks to help unwind from the intense concen tration. As traders, we need the same opportunity to break from the rigor. When we can only steal a few seconds to take a break, we have to be creative as to what that outlet will be. One method that worked for me was to simply put a 4" x 6" photo graph near the computer screens of a particularly favorite hik ing path. I would "walk" that twisted and curved path near Henry David Thoreau's famous Walden Pond. This photograph would serve as my mind's window of escape. Another method for taking a very short break without leaving the trading desk is to shift activities from thinking to doing. Make something. I learned to fold and design various paper airplanes. Our office was filled with aerodynamic planes that became very popular


throughout the trading room. The paper plane itself became a starting point to allow my mind to navigate its own flight plan of day dreams. A favorite paper plane design is illustrated in the photograph I took for the cover of this book. The instruc tions on how to make this same plane follow. If paper air planes aren't your thing, use a different sense. Put a CD on your player and kick back for a few minutes.

Flight Instructions

IF YOUR PLANE DIVES: Bend the

elevators u p a little or throw the plane a little faster.

IF YOUR PLANE CLIMBS, SLOWS DOWN, THEN DIVES: Bend the

elevators down a little or throw the plane a little slower.

IF YOUR PLANE VEERS TO THE RIGHT: Bend the rudder a little to

the left.

IF YOUR PLANE VEERS TO THE LEFT: Bend the rudder a little to the right.

Paper Airplane On The Cover

Th i s plane is formed fro1n a si ngle M1/2° hy 1 1 " sheet of paper.

t w o pieces of tape and two staples. ·rhc delta w i n li! «.k· s i �n is s i 1 n i lar

to t ht• X B -70 Val k yri� - a 2J)()()- rnilcs·Jll'r- hour l' Xpt.•rirnl'l l l a l l l n i tt·d

M A R K ET BOUGHT CBOT

CBOE

CME

CEC

COMEX

i

{P ,

'

E

MAR KET SOLD LCE

LIFFE

MATIF

SIMEX

SFE

S 30

SPM

565.70

Cut

l ! I i !. !

Cut

You may photocopy this page to create a template for your airplane . Align top edge of drawing to top edge of copier and enlarge 200%.


1 . Cut solid lines.

2. Fold paper in halfalong dotted line so printing is on the inside.

3 . Fold paper down as shown to fonn a diagonal edge.

AER ODYNAMIC TRADING

1 30

4. Same as previous

diagram in step 3 . (But the right wing is complete.)

5 . Fold wing over as shown.

Focusing/Concentration 131

6. Fold wing over fold line. Flip over and form other wing the same way.

7. Using 2 small pieces of

transparent tape, fasten down rear wings at points shown, on bottom side of wing. .


8. Fold down left front wing to

edge shown. (Different than rear wings.)

Fold 9. Fold front left wing down

in half to edge shown (known as the canard).


fold 1 0 . Fold down in half to edge again.

M

D..

en en

1 1 . Flip plane over to fonn front right wing.

AERODYNAMIC TRADING

1 34

M

ll.

(fJ (fJ

1 2 . The final fold over is easier i f front left wing is open as shown.

!_old tlne -

-

1 3 . Align the trailing edge of the canard wing so that it is underneath the main wing.


Pull Down

NOTE CHANGE 14.

,,

Nestle the top edge of the canard into the fold line of the main wing and staple as shown. Add a staple at the rear fuselage for weight.

(f)

CL. en UJ

1 5. Open the rear wings and fold

>Id

�- -

tail as shown to create the vertical stabilizers on each wing tip. Fold the stabilizers up.

16. Fold rear elevators up. ( See

page 1 27 for flight instruc tions.)


While your Basic Self will get all excited about anything

that seems fun, it also demands nutrition. You might want to bring fruit into the trading room so you can recover from a low blood sugar attack. There are lots of small ways to take a break and still be near the computer. Some traders use computer games. While fun, they never let your eyes take a break from the computer screen, so try to diversify and allow your mind to take a break in a way that does not need the computer. The point is: after controlling all the distractions for a prolonged period, give your mind a break by embracing the distractions. Here's the next exercise. You' ll be surprised by its difficulty when you first begin, but with practice you ' ll be able to mea sure and monitor your improving attention span. Objective: Increasing your ability to stay focused on

the present. Purpose:

To improve and lengthen the amount of

time you can sustain your abilities to concentrate. Have you ever experienced a time early in the morn ing when you suddenly found yourself walking into the building where you work, or walking into the trad ing room, and couldn't remember traveling from your home to that present location? It is as if we are not consciously aware of the steps in-between the activity of traveling from home to work. Like sleep walkers we unconsciously go through the motions. Maybe the routine in our lives is repeated so often that it just blurs all together. From Darien to Wall Street it requires two differ ent trains to cover the distance. Occasionally, I could hardly recall the transfer from one train at Grand Cen tral to the next one in the Lexington subway to finish


the commute to Wall Street. If you can identify with this experience, then have I got the perfect exercise for you. But if you have not experienced something similar, you're not off the hook, do it anyway.

Exercise:

Pick a period of time, like a commute from

home to work, which is extremely repetitive in your day-to-day routine. This exercise needs an element of distance, a fixed interval of time, and repetition; there fore, a frequent commute is ideal. Now set up small milestones for yourself to break the distance into smaller segments. The time from getting in my car to when the train picks me up on the platform in Darien; then the distance from Darien to when the train crosses the bridge at Old Greenwich; from that bridge to the 1 25th Street Station; etc. You get the idea, even if you are not familiar with the train route between Darien and Manhattan. From the start ing point to the first milestone, you only focus on what is happening to you. Pay attention to the people around you. Treat that time like you are passively viewing a movie screen. Pay attention to every detail. What other people are wearing, which landmarks you passed, the change in pitch of the train wheels as you approach, then cross the bridge. Filter out any distracting thought that tries to pull you away from the present and your conscious observation post. You will eventually slip into the past or future by wondering what people do, or remember ing an incident in the past, or formulating hypotheses about what will happen to you in the future . When

this happens, think of how far you traveled before your

concentration was broken. Mentally give yourself an immediate pat on the back for trying such an exercise.


138

B e aware that simply doing the exercise has put you on the road to pass most of those sitting around you. You gave your full attention consciously to the present, even if only for a short distance before your mind lost focus and you lapsed into the past or future. You also made the transition from

wanting to

doing something about improving your concentration.

Focus

again and try to stay within the present a little longer. The next day repeat the exercise and keep your atten tion on the present for a longer time, over a farther distance. The long term goal is to be able to concen trate the entire distance between your home and work without being pulled into the past or future. In the present you react to what you are experiencing; you aren 't focused on what you are about to do in the office, or what you did the prior night. This last exercise is very hard to do, but I think you can understand the value of it.

1 39

Centering Without Oars (of the same length) You Cannot Cross in a Boat

-Japanese Proverb

Centering is a thought process which develops understand ing of how every aspect in our life contributes to our overall development, growth, and ability to trade. When we are cen tered, there is an inner core of strength and calm. Distractions and events which don't fall in our favor are unable to pull us from a solid inner foundation. When centered, we remain in control; off center we lose control. As an example, a question able line call for a centered tennis player will have no effect.

There will also be no break in their ability to concentrate on the next point to be played. With the law of averages, maybe a lucky net cord bounce will eventually occur to even out the bad line call at a later time. However, if the questionable call pulls the player offbalance, that resulting break of concentration will likely have a negative effect on future points in the game. The same situation develops for traders. One bad trade or a horrible fill can pull you off center if you let it. One morning before the market opened, the floor called me to change my fill on 1 00 cars in the S&P market by 3 full handles (points). There

was a fast market the previous day, but it wasn 't thatfast! I f you are unfamiliar with the S&P market, this was notice that I had lost $ 1 50,000 in my account before the new trading ses sion had even begun. (The finn did not tape record our orders

so there was no recourse on our part when the tape from the


floor was found to be inaudible. Tape recorders had been viewed

as an unnecessary expense by the firm I was working for. . . that was, until that incident occurred.) I was thrown off center by

the incident and knew not to trade that day. I was angry to the core and stormed out of the building. Had I traded at all with a hostile attitude, the results would have been disastrous. I also recognized that I had to go back and practice an exercise that effectively prepares you for just such a situation. This exercise is effective, but we'll put off defining what it is for just a few more pages. Keeping our center of balance also means retaining our per spective. Our trading ability is never as good as our best win ner, nor as bad as our worst loss. Even the most centered occa sionally will be pulled off balance and overreact. When this happens, rather than become self-critical, congratulate yourself that you became aware of the imbalance.

Recognizing the

weakness is the first real step in strengthening it. The movie Ghost has a rather memorable and sensual scene

around a potter's wheel as the two principal characters of the

movie work together on a vase. If you have ever worked with clay on a potter's wheel, you may have discovered that throw ing pots is a rather interesting barometer of inner balance. The oozing clay swirling between your hands can develop into a beautifully balanced vase when events in your life seem to be

situation, it becomes an impossible task to form a symmetrical

going well. However, when upset or thrown off center by some

object. No matter how many times you may start from scratch by throwing the clay mound back onto the wheel 's center, it always seems to turn out asymmetrical and irregular in shape . This offers physical evidence of the mind-body connection be tween our inner balance and outer performance. Both the movie and television industries have tried to tap the Western audience's curiosity about exploration of inner strength. One of the more successful marketing attempts placed the viewer

Centering 141

somewhere in the dry, arid American West. The audience was immediately engulfed by a howling wind blowing dust and tum bleweeds across a vast barren desert. The camera revealed to us a lone figure emerging out of the dust. He strode across the desert floor leaving no footprints as the winds quickly erased his tracks. He walked gracefully, at an unhurried pace. He wore an old hat, and carried only a small bag, a bedroll, and worn shoes slung over his shoulders. His face, unlined and serene, revealed a man without past or future; a man living fully in the present moment. We are able to sense in him a great courage, power, and strength, that at the same time projected a quality of compassion and kindness. His name was Kwai Chang Cain. This characterization of a Shaolin priest, in the series

Kung Fu, was Hollywood's definition of being centered. This television series, starring David Carradine, barely scratched the surface. There are real-life examples of those who have mastered liv ing in the present and have attained the peaceful inner strength we all search for: Mahatma Gandhi, Albert Schweitzer, the Chinese student who stood alone, directly in front of the ap

proaching tanks during the Tiananmen Square assault, and many others who reflect the potential within each of us.

It is this inner balance and centered strength which enables the extraordinary. It is attained by inner development and ac ceptance of full accountability for our own actions and atti tudes, as opposed to an external search and outward force or aggression. I am familiar with the techniques for attaining in ner balance and centeredness, but I have not mastered the abil ity to remain constantly centered. However, I don 't feel a need to be in control at all times. The centered strength or inner calm occurs when we have given equal attention to the needs of our three selves. the (�on scious Self, the Basic Self, and the Higher Self. The degree to which we are able to center ourselves and the amount of time


1 42

we remain centered is equal to the degree of skill we have for maintaining our focus and concentration. It is unnecessary to concentrate all the time, as it is unnecessary to be centered at all times. Objective: Moving back to inner calm and control,

our point of center, after an external distraction. Purpose:

Learning how to filter external noise. (A

preparatory step to learning how to filter inner noise and distractions.) This activity was given to me when I lived in Toronto. It will be ideally suited for anyone who lives in a city where there is a subway: New York, Chicago, Toronto, London, Tokyo, or Moscow. If you live else where, any noisy event will do, or put on a heavy metal CD and crank up the volume until the windows shake. It is an easy exercise to adapt to any environment. It shouldn't be difficult; all you really need is a location that produces a loud, ear-piercing noise that is diffi cult to contend with and makes you uncomfortable.

Now how hard can that be to find in this age, hmm?

This exercise creates stress. It was not designed to be fun, but it is extremely effective in teaching and preparing us to let go of a major external distraction. It offers us a means to discover for ourselves how to regain an inner calln and center of balance, even be come relaxed, while we are still standing in the middle of a hostile environment. Exercise: Stand in an underground subway and pur

posely miss your next train. This will throw you off center and into a reactionary mode of behavior. No-

Centering 1 43

tice the surroundings and the expressions on people's

faces. Feel the tension in the air. You '11 likely feel the

tension as soon as the train wheels begin squealing out of the station. As your train causes that horrible,

ear-shattering, high-pitched sound of steel wheels screeching on steel tracks to reverberate through your body, take a deep breath. Tell yourself, "this noise cannot pull me off center."

Feel the high-pitched noise flow into your body and imagine it passing right through. Visually imagine the painful noise as a wave or color that enters and leaves your body. As it leaves,

you will be able to lower the sensation of stress. The

pain of the high pitch will actually seem to drop in decibels to a level of sound that is more tolerable to your ears. Don't fight it. Don't let the sound build within you. Let it go. As the stress recedes, feel an inner calm take the place of the noise. The noise is still there, but you are concentrating on letting it pass through you and are thereby regaining your own con trol. See yourself responding with confidence, ease, and poise. This feeling is balance. You will notice others around you have frozen and become paralyzed by the same noise, yet you are now able to watch and view their reaction instead of being entirely focused on the noise and its impact on you. This is another element that shows you have regained your center of balance. When your attention begins to refocus on the noise keep repeating, "Let it go, just let

it

flow

through me." Save this experience and the

sensation you felt for future rc centering after a setback or crisis. It is the exact same sensat ion when the floor cal ls you to hit your account S I S0,000 just be fore the market opens. Repeat the exercise as the next train


pulls into the station. Get on the train and move on. It's behind you; just let it go i f there is nothing more that can be done. Move forward.

don i overdo it. Don't hang around the station for the next train During this exercise there is one very important element.

. .

to try this technique a second time. Our resistance to the dis

traction and our ability to let it pass through us will rapidly diminish if the painful setting or situation becomes repetitive. It is similar to having a painful injection. Using this technique blocked the pain for the first few cortisone shots in my shoul der from swimming. Eventually I couldn 't use the technique as I was unable to concentrate on it as the trainers pierced the same shoulder over and over again. Pain has its limits, but all stressful experiences can be tolerated for longer periods than you would normally expect to by practicing. Practice builds our stamina and tolerance to stressful experiences. As traders we need stamina to handle our trading environments. When the disturbance is other than a physical sound, you will want to use an additional technique . This is a method I referred to on page 3 7, in the chapter "The Three Selves". As I walked out on the pool deck prior to an international swim meet, I defused the distractions by mentally forming a "tunnel'' surrounded by a soft peripheral focus to re-center myself.

I

used the exact same technique when I walked past an individual in the trading room to filter him out - by forming a soft pe ripheral focus around me. You are remaining in control by nar rowing your inner field of vision. When you watch a sporting event, you would likely have noticed many athletes listen to tape recorders or portable CDs with headsets. By involving your other senses, in this case music, you will keep your mind and its negative chatter of thoughts to a minimum. It is a different application of the same visual tun nel technique or channel where you control your focus of aware

with a nainful 'noise. •

ness. Music is just another way to filter and allows an escape from a distraction or stress associated

Centering 1 45

The same technique can be used while trading. In some situ

ations, to relax the tension in my neck and shoulders, or to filter out distractions which are beginning to pull me off center, I listen to a portable CD player after establishing a position. Sometimes the music you listen to can be serendipitous. One day I opened a new CD of John Williams' motion picture

themes. I only scanned the contents and saw themes to Steven Spielberg's movies that I like. I didn't read the list very care fully, though. I put my headset over my ears, volwne on full, kicked back in front of the computer screen, ready, music mae stro, please ... and the theme to the movie

Jaws began. Ironi

cally the locals had my position for lunch that day.


147

Intuition "If I ever stopped to think about what happens after the ball hits my hands, it might screw up the whole process. " �oe Montana, three time Super Bowl Most Valuable Player

The process described by quarterback Joe Montana most certainly applies to trading. Joe's comments show that any con scious decision-making that enters into a fast paced activity usually ends up destroying the critical timing and minimizes the result. It seems once we have learned how to do something, and the mechanics of that activity become effortless and auto mated, we then begin to rely on a natural sense of timing as dictated by an inner voice and metronome. This sense has been described in various ways: impulse, instinct, gut feel, insight, sixth sense, automatic response or reflex, inner wisdom. All of these words or phrases portray a direct knowing without the conscious use of reasoning. And it is this intuitive knowing that is essential to all fast paced activities that demand the co operation ofbody, mind, and spirit. You can't watch yourself fly. But you know when you 're in sync with the machine, so plugged into its instruments and controls that your mind and your hand become the heart of its operating system. You can make that airplane talk,

and like a good horse, the machine knows when it ·s in com

petent hands. You know what you can get away with . And you can be wrong only once. -General Chuck Yeager, First Man to Break Mach 1 : the aound barrier. Yeaoer: An Autobiography.


One explanation of intuition having greater value in fast paced and high risk environments is that our Conscious Selfbecomes bogged down with too much information. It is like our brains have the structure of a bureaucratic corporation. The Conscious Self is akin to the ivory tower executive staff of the corpora tion. Top level executives cannot be involved with all the minute details of a business; information is passed on by summary re

ports and executive support staff. The decision-making ability of the top executives is dictated by what filters up to them. If given incomplete, wrong, or filtered information, the executive staffwill be put in a position of making decisions from errone ous facts. In the case of our Conscious Self, we are unable to access the lower divisions and floors of our own corporate structure. Therefore, the Conscious Self is severely hampered and not fully equipped to make critical decisions because it is working with incomplete data. The Conscious Self is capable of many things, but it isn't very good at making decisions because it gets clogged up by analysis paralysis. The Conscious Self is like the trader who uses twenty different methods to determine when to buy or sell. They frequently miss trades by being over burdened with information. They need the intuitive guidance of the Basic Self. As with most corporations, the employees, even low level employees, usually grasp the problems and are

make , long before the executive board reaches similar conclu

capable of figuring out what changes the corporation needs to

sions. We are like that corporation. Our Basic Self is our cor

porate grapevine, and our Conscious Self is our Executive Com mittee. Good instincts usually tell you what to do long before your head has figured it out.

-Andrew Jackson

Intuition 1 49

As the conscious mind is limited, it is the Basic Self that steps in to help us make faster, clearer, more comprehensive decisions. This occurs because our subconscious can access many more variables without boundaries of conventional mea surements of time. If you have ever been involved in a car accident that you can see coming but cannot avoid, it seems to happen in slow motion. We have endless time to process all our options before the point of impact occurs with the other car. In reality, the point of impact could be fractions of a sec ond away, yet we find the time to process the angles of impact to minimize our risk. This is our intuition at work. It is our intuition that also provides the immediate under standing of a developing situation on our computer screens and how to react to it. That is, if we have done our homework beforehand to test for such a scenario. The Conscious Self trains and prepares us on the mechanics of trading like a flight instructor, forcing us to spend endless hours testing our indica tors that become the tools of our trade. But after studying the numerous market scenarios and variable outcomes, the Con scious Self steps back and the Basic Self takes over. Markets don't allow us the luxury of time to think. We don't have the time to give to our Conscious Self.

In such situations,

analysis is paralysis. We all possess an intuitive instinct, yet few of us hear it or trust it to the level we should for consistent and successful re sults. When you intuitively feel "this isn't the best time or mar ket level" or your instinct yells "it's wrong, get out, get out!" follow your instinct. (However, using this abusively as a crutch will be discussed at a later lime.) If the instinctive response was wrong, know it can be cultivated and developed with ex tensive back-testing. You may be thinking: "but isn 't paper trading a better way to test the profitability potential of your skills?" NO! Paper trading has none of the risk or inner de mands associated with risking real capital . Phooey to those

AERODYNAMIC' TRADING I SO

who think they are market wizards after they show staggering profits from hypothetical paper trades. Even if you factor in excessive slippage and commission costs after the fact, they

have never been battle tested. If you've not been tested under fire, you cannot determine or even guess how well you would do when the virtual game turns into the real battle against your self and the markets. We lose money because of our inner vul nerabilities. Weaknesses within ourself will defeat us, not any external factor. It is not the same to talk of bulls as to be in the bullring.

-Spanish Proverb

Evel Knievel, the oft-fractured motorcycle daredevil, was also an avid golfer. He wanted to challenge Jack Nicklaus or Arnold Palmer to a unique $5 00,000 skins game. The winner would gain $5 00,000, but the stakes would be paid out of the loser 's pocket. To Knievel, the definition of pressure was not the difference between winning $250,000 of the sponsor's prize money, or only winning $ 1 00,000 by missing a six-foot putt. Pressure was the difference between winning $500,000 and having to pay $500,000 out of your own pocket. Neither golf legend accepted the challenge. Maybe that 's why they are golf ers, not traders . It takes a special mindset to be a trader. Japanese candle stick analysis has integrated terms reflecting military conditions that engulfed Japan for centuries. There are "night and morn ing attacks," the ''advancing three soldiers pattern," and "counter attack lines," to name a few. 1 Trading has long been recog

nized as requiring the same skills as those needed to be victori ous in battle. The first futures market evolved in 1 7th century Japan out of the need of Samurai warlords to meet their future rice taxes. Hideyoshi Toyotomi was one of three great generals

Intuition 151

attributed with bringing unification to Japan, ending "Sengoku Jidai," the 1 00-year period of war. Hideyoshi regarded Osaka as Japan's capital and promoted the development of commerce in that area. It has been told that warriors of Hideyoshi were positioned throughout his rice fields and on roof tops. These warriors would relay changing crop conditions from one field to the next until they reached Hideyoshi in Osaka. It was one of Hideyoshi 's war merchants that established the roots of the first centralized rice futures market. The merchant's extraordinary ability to establish the price of rice formed a cen tralized market on his front lawn. What was the name of this first exceptional trader? Yodoya Keian. (Hard to ignore that the name Yodoya, when spoken by a Japanese, sounds to the Western ear like "Yoda"! ) Osaka life in the 1 700s was centered around making a profit; however, the class structure within this environment was strictly managed by the Japanese Samurai warlords. Yodoya, frrst trader extraordinaire, became too wealthy for his social rank. In 1 705, his entire fortune was confiscated. His demise could have been worse. In 1 642, an attempt had been made to comer the rice market, and the punishment for those involved - execution of their children, banishment of the merchants, and confiscation of all their wealth. Despite such harsh penalties, trading grew and the Dojima Rice Exchange was formed from Yodoya's front yard in the late 1 600s. Up until 1 7 1 0, the Exchange dealt in actual rice, but at this time the Rice Exchange began to issue and accept rice warehouse receipts. These receipts for future delivery of rice to the warehouse were called rice coupons. By 1 749, there were 30,000 bales of rice harvested throughout all of Japan, but the number of rice coupons traded would have corresponded to a total of 1 1 0,000 bales. 2 Speculative trading had to account for most of the differential. 2

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AERODYNAMIC TRADING 1 S2

A modern day samurai, Taisen Deshimaru Roshi, wrote The Zen Way To The Martial A rts: A Japanese Master Reveals the

Secrets ofthe Samurai. The author was born in Japan of an old

samurai family and taught at the Soto Zen School until his death in 1 98 2 .

He himself trained under the Great Master Kodo

Sawaki . In Master Deshimaru 's book, on page 35, there is an exchange between a student and Master Deshimaru. This ex cerpt shows that the outcome for any conflict will ultimately be determined by how well we have trained our minds to be atten tive. Student: Last year in Kyoto I watched a contest be

tween two kendo masters who were about eighty years old. They stood face to face, sword in hand, sword tip against sword-tip, without moving, absolutely with

minutes the referee declared the match a tie, /dki wake.

out moving, for five minutes. And at the end of five

Deshimaru Roshi : Yes. When you move, you show

your weak points. Where young men would have worn themselves out in fierce thrusts and unorganized rush ing about, where more mature men would have called into play all the experience of their technique, the two old masters simply fought spirit, with and through their eyes. If one of them had moved, his consciousness would have moved too and he would have shown a weakness. The first to weaken would have been ut terly lost, because the other would have answered with one blow. It is the same in everyday life as well, you must watch the other person 's eyes; when your adversary's eyes move, or are unclear, hesitate, doubt, waver, there is suki, opportunity, the flaw. In the critical moments of our lives we must not show our weak points; be-

Intuition 1 53

cause if we do we will make mistakes, we will stumble and fall and be defeated. This form of vigilance can not come from constant bodily tension, for the body would soon wear out; it must come from the atten tiveness and strength of the mind.3 The goal is not technique, though improved technique re moves the distraction of doubt we have about our ability. The aim is not physical strength, yet physical weakness hampers our ability to focus. It's certainly not outward aggression, for that drains our energies and leads to a loss of the control we have over our own actions. Everything we do to prepare to

trade contributes to increasing the attentiveness of our mind and ultimately our ability. Without testing the strength and attentiveness of our own mind in real battle in the markets, we have no foundation on which to judge our skills. Paper traders are just fooling them selves. So what's all this got to do with becoming a Samurai trader, or a Top Gun pilot in the markets? All these different exercises

to develop our inner skills contribute to our trading performance. A Top Gun pilot may fight only two or three real dog fights in his career, but he fought thousands of battle simulations in preparation. Joe Montana would take at least 300 snaps a week in practice to refine his timing and technique, but his actions during a game were instinctive. Both did their homework until the mechanics became instinctive. It is no different for traders. We have to do our homework as well. Our homework involves countless hours of indicator back testing to build a confident reference library for our dec isions.

3

From The Zen Way To The Martial A rts. by Tahaen I>eahimaru. trantt

lated by Nancy Amphoux. O 1 983 by Taiacn Deahi maru . lJaed by pcrmiN· sion of Dutton Signet, a division of Pcnauin Book• lJSA Inc .

AERODYNAMIC TRADING

I S4

We test and retest our hypothesis and trading results until rapid

fire trading decisions became instinctive. Intuition is born from

hard work. There is no way to side step this phase of develop ment. Ifyou are currently struggling with the technical aspects of trading, the chapters that follow will be challenging for you. However, those who know there is more to trading than techni cal skill, or discipline, are ready to fully benefit in the training which lies ahead. Let's go back to the final days leading towards the GulfWar. At this stage of my career, I was trading for a private investor who leased two condominiums that comprised the entire pent house floor of a high-rise building near the United Nations Building in New York. Security at the building, which housed numerous foreign dignitaries, was as tight as Fort Knox. I am quite confident that the key security positions for this building were filled by Secret Service Agents. All the condos facing southeast could clearly see down to the front driveway of the U.N. Building. Of the two penthouse condominiums, one was dedicated entirely to the trading operation. The trading room was spec tacular. It was situated in what had previously been a sunken living room with hardwood floors at the comer of the building. Two entire walls were floor to ceiling glass. The trading desk was made up of two huge glass tables fitted back-to-back in the

middle ofthe room. By day it offered a stunning view of New York; by night, it was breath taking. This room was surrounded

by a sparkling curtain of city lights and shimmering building silhouettes. The immense and spectacular trading desk was not cluttered with the usual cables and paper. There were nine 3 5 " TV screens stacked three high, covering the full width of the room. Eight screens tracked the markets, and the center screen tracked the profit/loss of all open positions on a real time basis. (If a trader was in a losing trade, everyone on the desk could see it ! ) The other wall that ran the length of the room was a white board where the finn 's analyst kept a running

Intuition 155

tally o f support/resistance, price projections, volatility, Fibo nacci levels, and custom statistics. Now you have a feel for what this trading environment was like. Five traders were employed to trade their specialty: S&P, Bonds, Crude, Beans, and Metals. A sixth seat at the head of the table was reserved for the Principal. I traded the S&P. The energy specialist had an additional responsibility : having ac quired exceptional money management skills while trading for Paul Tudor Jones, he managed the risk exposure for the firm. Each morning when we entered the trading room, we were required to put a number from 1 to 1 0 on the white board be side our names. This number was an analysis of ourselves. If you felt like you were sitting on top of the world, everything was going your way, you felt healthy, strong, and had an invin cible attitude ready to take on anything that might happen that day, you would give yourself a rating of 1 0. On the other hand, if you had been up all night with the flu, you just opened your mail and learned you have been personally selected by the IRS to experience the joy of a field audit, and you wanted to kick anything living or inert that comes in your way, you might give that day's attitude a rating of one. Most of us rated ourselves between four and eight. A 1 0 was rare, and when it showed up on the board, everyone took notice of it. A shuffle would occur within the firm. If the Bean trader was a 1 0 when I was closer to a 3, the firm's trading capital was allocated accordingly so that the Bean trader could establish positions of greater size than might normally occur. No one was motivated to falsely give themselves a 1 0, as a 1 0 also meant that you were trading a portion of the other traders' capital, and they could constantly see how your trades were doing by just looking at the middle monitor. You had to be incredibly sure of yourselfto be willing to take on that extra stress. It is an interesting system that I still use today with a few minor twists. I 've altered the daily rating

to a scale of . 1 to 1 .00. The rating becomes a weighting adjust ment to the probability portion of any risk

management

equa-

AER OD YNAMIC TRADING 1 56

tion. It is important if you adopt such a system to rate yourself before the markets open. This system of attitude monitoring ties directly to how tuned in you may be to your intuition. One of the rarely declared ' 1 0' ratings that I gave myself happened to coincide with the James Baker/Tarek Aziz last ditch effort to prevent the Gulf War. You knew the outcome of the meeting would produce a ballistic market move, and the outcome would dictate the direction. Every trader in the world faced flat lines on their computer screens as we waited for them to emerge from their meeting at the Intercontinental Hotel in Geneva, Switzerland. We were all

On that day, my intuition was a live electric wire. Every little

waiting for Secretary Baker's statement.

thing seemed to be amplified. The first jolt after the meeting was when CNN announced that the press briefing had been rescheduled to a later time so that Secretary of State Baker could report to President Bush. That time delay alone nearly had me reaching for the phone to sell S&Ps. You don't call the boss to tell him you succeeded, that can be relayed within a public forum. You usually only need to con sult with the boss when you need to define a plan of action when you have to walk on eggshells or cover your back. While the CNN anchor babbled in Atlanta over a live picture from Geneva, you could see a reporter ask Baker a question. They did not broadcast the audio for this live picture, but sound wasn't needed. If you had an eye for detail, the answer was clear as a bell. B aker wiped his hands, left over right, right over left, and shrugged them away from his body as if he were trying to wash this whole mess off and push it away. I instantly grabbed the phone to start selling the S&P up to my full size without mov ing the market excessively. The other traders on the desk were still waiting to hear Baker, and they all looked in shock at me

and then turned questioningly to the Principal of the firm sit

frenzy I yelled, "SELL! IT' S WAR!" The principal just looked

ting at the head of the trading table. Somewhere in my selling

Intuition 1 57

at me with a questioning glance. I nodded back and kept sell ing. About that time, the CNN camera showed Baker walking down the hall toward the press room. To me, he had the weight of the world on his shoulders, and the Principal then picked-up on Baker's body language. The other traders still had no sense of what was coming. About the same time, the Principal looked over at the white board and saw the nwnber 1 0 scratched by my name. Without any further delay, he screamed in his heavy German accent, "DO IT ! " We were all fully positioned by the time Baker began his now famous, "I re . . . . " The markets never even let him finish the word regret before all hell broke loose on the screens. To my great relief, we were on the right side. The desk netted a two million dollar gain within the next thirty minutes. Many individuals who freeze at the screen, and cannot pull the trigger to execute a trade, experience analysis paralysis be cause they are unsure of the tools from which they base their decisions. These individuals have not put in enough time, they haven't done their homework, to build their confidence. This form of decision paralysis is simple to fix. It just takes time and hard work to answer the nagging questions. There are cer tainly other reasons for decision paralysis that are more diffi cult to address, and these will be explored in other chapters. Intuition, I find, plays an important part when I don't under stand what 's happening or developing on the screen. At these times I find it is more helpful not to push for the answer. Relax, become calm, and go with the flow of your intuitive self. For years I carried around a quote from Albert Einstein. It goes something like this: As one grows older, one sees the impossibility of im

posing one's will on the chaos with brute force. But if ..

you are patient, there will come that moment in time,

when while eating an apple. the solution will present itself politely and say. 0Jlerc I am."

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AERODYNAMIC TRADING

--

\ 158

---

When the solution does not present itself politely, the situa tion unfolding on the screen likely contains a wild card that I don't understand. In which case, my intuition nearly always forces me to the sidelines and out ofthe trade. It may mean that

the exact same trade will have to be established at a slightly

different level. However, when I truly have no idea about what is transpiring on the computer screen between markets, my flight-to-safety instinct is invariably the correct response. A flight-to-safety response can be abused as an easy out to resolve an inner conflict between the Basic Self and the Con scious Self. Fortunately it is easy to identify when this tug of war happens within us. The Basic Self and the Conscious Self are usually separated by the word "But." This leads us to the next exercise. Objective: Trading from the Left Side ofYour "But." Purpose:

Learn to favor your Intuition rather than

your Conscious Self. Exercise: Simply stated, stay on the left side of your

"but," and don't let what follows the "but" steer you off course. The left side of each of these phrases is your intuition. Here are a few examples: "I could really use a break,

"I really think there is a buying opportunity right now,

BUT BUT

I need another winning trade

to close out the month. "

my indicators have not given their usual confirmation pat tern."

"I really want to get out

of this trade I just established,

BUT

my broker will think I'm indecisive."

Intuition 1 59

"There is a strong sell signal on the screen right now,

BUT

the last time I traded from that same signal I was wrong."

"Euros are in a fast market and bonds haven't moved.

BUT

I should sell bonds immediately, "I really should go out to that party tonight, "I'd really like to get into better physical condition,

I don 't know all the factors

that explain why this imbal

ance is occurring." BUT

I have to get up early."

BUT

there's no time."

You probably have the pattern firmly identified in your mind now with these examples. The challenge is to live and stay on the left side of your "but." You can also practice your intuition by trying to predict com mon every day occurrences. For instance: who is calling on the phone? What does that man in the seat beside me do for a living? Will that man waiting for the train door to open walk to the left or right? It is our inner voice that can guide us through a crisis, major decision, or problem, or simply change mun dane habits. Our intuition is our most reliable guide. By asking simple questions of ourselves like those just listed, as if it were a game, we learn to listen to the answer from within. It's not the answer that is important, it's learning to listen for our inner voice.

When we trade without effort, we are thinking less about our actions and listening more to our intuition. How can you think and hit at the same time?

-Yogi Berra


To conclude this discussion of intuition, let's return to the

Secrets

of the Samurai.

This is an excerpt from a Sajshin, an

intensive three-day training session. Student: But why is spirit or mind the most impor

tant? Taisen Deshimaru:

Because in the end, it is what

decides. In the Japanese martial arts of long ago, one mo tion meant death, and that was the reason for the great deliberation and concentration in the movements pre ceding attack. One stroke and it's over: one dead man - sometimes two, if there were two strokes and both were as it should be. It all happens in a flash. And in that flash the mind decides, technique and body fol low. In all modem sports there is a pause, but in the martial arts there is no pause. If you wait, ever so little, you're lost; your opponent gets the advantage. The mind must be constantly concentrated on the whole situation, ready to act or react; that 's why it is most important. Student: How does one choose the technique of at

tack? Taisen Deshimaru: There is no choosing. It happens

unconsciously, automatically, naturally. There can be no thought, because if there is a thought there is a time of thought and that means a flaw. For the right movement to occur there must be per manent, totally alert awareness, of the entire situation; that awareness chooses the right stroke, technique and the body executes it, and it's all over.

Intuition 1 61

Student: In kendo, for example, there is a tactic called debana wasa: you must attack before your opponent does, strike before he strikes. For that technique, in tuition is certainly very important.

Taisen Deshimaru: It is always important, essential. If an opponent gives you a blow you were not expect ing, then you have to have the intuition to parry it, that will trigger the right reaction of body and tech nique. But if you take time to think, "I must use this or that technique," you will be struck while you 're thinking. Intuition triggers body and technique . Body and consciousness unite, you think with the whole body, your whole self is invested in the reaction. That's why it is so difficult to make categories about the order of importance ofshin, wasa, tai mind, tech -

nique, body. They have to be united, not separate. It is the perfect union of the three that creates the right action; not their separation. Complete unity. In the martial arts, kendo, the way of the sword, has always been regarded as the noblest of all because it necessitated the most complete union of all three, intuition, body, and technique. 4

From The Zen Way To The Martial A rt.,, by T1h1en l>cahimaru, trans

lated by Nancy A mphoux 0 1 983 by Taiaen Deahimaru . lJacd by permis 4

sion of Dutton Signet, a division of Pen11uln Book• USA In� .

AERODYNAMIC TRADING

1 62

1 63

Visualization Our visions are the blueprints of our reality.

Recall a television close-up of an Olympic downhill skier standing at the top of a mountain prior to the race.

Within

minutes that racer will put years oftraining to the final test with a two minute free-fall down the icy slope of a mountain. They stand with their eyes closed near the starting line. If we watch carefully we see controlled skiing motions - weight to left, weight to right, hands driving forward - as they

run

"inner

videos" in their mind of the course from start to finish. We know what they are doing. We can see their bodies react to the skiers' inner images. Chris Evert, Jack Nicklaus, Carl Lewis, and hundreds of elite athletes have all described their method of creating sharp, vivid images of themselves being successful

before they step out to take action.

They refuse to leave the

outcome to chance; they train and rehearse mind and body syn chronously. Why? It is because what we conceive in our mind's eye is what we can accomplish. We direct and control the outcome of our own performances by first accumulating images and data that will lead to our success. Visions are our ideas in picture form. Since pictures are connected to ideas, they have energy just as ideas do. It is the energy of our mental pictures that encourages them to take form and become real actions. As a result, visions are the blueprints of our reality.

As an example, should you see yourself as a math

whiz, you

will likely prove this to be true the next time you are challenged


by a math problem. We can also accumulate negative images. How much time do you spend visualizing past events that you want to eliminate? We tend to dwell on the issues we dislike, often visualizing and rehearsing them with great passion and intensity. If you picture yourself as unable to break out of a trading slump, you will live up to that negative image. The activity of visualizing negative outcomes is a rehearsal to fail. It also keeps the negative attitudes and energy alive that accom pany these negative pictures. They hold us captive by blocking us from developing other positive images we may strive to cre ate. Visualization is an important technique to be used within a trading environment. It helps us prepare ourselves for numer ous potential market outcomes. These inner pictures become a rehearsal for the actions we need to take in a critical situation. In the early chapters I shared with you the thought process that took place when I had a large S&P position in serious trouble during the GulfWar. I used visualization while still on the train to evaluate my options on how best to unwind a big mess. I pictured in my mind the various market scenarios that could occur once the market reopened . Then these images were used to create various plans of action for that specific market sce nario. Eventually you have a plan of action for each outcome, and you have prepared yourself to the best of your ability. You may do better next time from what you learn from this situa tion. But that is the future, only the now counts. When pre pared to your fullest potential, the anxiety is usually replaced with an inner calm. The calm is confidence. Before I left Kodak, I had already developed a strong image of myself being successful in the financial world. That inner image was a novice's Disneyland world. However, that virtual image generated action and was soon reinforced with the in stallation of a real-time quote machine on my desk. This posi tive inner image was energized when I had my first few win-

Visualization 1 65

ning trades. The visions blurred with reality even further as I developed my command of the language associated with trad ing. Fact reinforced the vision and produced more actions. They began to propel one another. Soon the image and the reality merged when my Kodak peers and some Directors began to ask for my advice and forecasts. I knew absolutely nothing about the markets. In hindsight, I only acted out a stage charac ter in full dress rehearsal. The script was written and rehearsed within my visions; my conscious self and body reenacted the rehearsal in reality. Soon I had on public record enough correct market calls that those around me perceived my knowledge as far greater than theirs. Soon all that differentiated the reality from the dream was the actual physical location and surround ings. It didn 't matter that I knew squat about the markets; I did

not need additional knowledge at that time to exchange the vir tual image ofmyselffor reality. Mentally I had already made the career change . Once I had started my new job with the junk bond firm, my Disneyland picture of what it would be like was shattered.

But there again, it was shattered after the career

change had already been made. I had to go forward to survive. The reason visualization works so effectively is that you cre ate a picture in advance of each movement or action exactly as it should be, while you are in a relaxed state of mind. The more you practice in this relaxed state of mind, the greater will be the chance that you will be able to carry out those movements dur ing the real performance. Visualization helps to smooth out erratic performances and builds consistency because you are essentially preprogramming your actions. Constant replaying of your visions builds consistency, and that promotes perfor mance excellence. The Boston Celtics reached a staggering conclusion when they tried an experiment in visualization. Playen were sepa rated into two groups with the goal to improve their foul-shot percentages. One group had unlimited practice time to shoot

AERODYNAMIC TRADING

1 66

endless foul-shots. The other group had restricted shooting time, but were taught to visualize doing the same thing. After three

weeks what did the study find? Those who visualized foul shots excelled at the free-throw line in game performance. It's time we make use of these results by taking a look at the next exercise. .

Objective:

Transforming Erratic Performances by

Visualization. Purpose: Consistency improves results and establishes

a common foundation to return to for making enhance ments. You'll like this exercise. It will improve your golf swing, or skill in any sport you may now enjoy. To begin, you need to think of a particular aspect of your game or sport that you feel could be improved. A few examples could be your tennis backhand or serve; your golf chip shot or putting; for a dressage rider maybe the half-passe or tempi changes. Regardless of the activity you choose, you need to pick an element that will be very specific within that activity. Exercise: Now with your mind's eye, see yourself

repeatedly performing that task as you would like it to be performed. It is always helpful to watch a video of a high achiever you admire in your sport or activity. The next step is to transpose the image of yourself into this video. You see yourself in the role of the individual you admired. The hook is to then create a physical trigger or cue for yourself that acts as a re minder on command. Your eyes are closed and there is no body movement as your mind rehearses the ac-

Visualization 1 67

tion. (This process is entirely mental, you are not play ing air tennis with an imaginary racket.) As you men tally visualize executing your perfect tennis backhand, create a physical reminder, such

as

forming a small

circle with your fingers so that the index, or middle finger comes in contact with your thumb. What ever you choose, it just has to be simple. Then tell your self, "I can repeat this form on command anytime by use ofmy physical reminder." By connecting the men tal visualization with an actual physical action, you

will be able to bring that form ofperfection back into

focus by simply using your reminder while waiting for the serve. As you will discover, the outcome will produce the success ful results you pictured during your visualized rehearsal . A success will itself produce another success if you use and apply yourself to the next exercise.

Objective: Visualizing Reruns ofPast Successes. Purpose: Training your mind to reproduce the envi ronment of a success on command. There will be trading days when everything seems to come together and go your way. You must save the feelings and actions of this day. Savor them. Practice visualizing the conviction and attitudes with which you entered your orders.

Exercise: Recall and record in your mind the confi dence and ease with which you made deciaiona on this

day. Do not forget the sensations when you are trad ing at this level .

Rerun the experience and perfor·


mance in every detail shortly after the reality has past.

Create your physical reminder. It could be the one described earlier or perhaps take one of the many small desk toys we are given by vendors as a cue. Visualize this performance often to carve this day and its feel ings of optimal performance into every cell of your mind. When you use your cue, it will help you to focus so you can recall this optimal performance on command. It will not repeat the performance; it will help you recapture the mindset you experienced ear lier. You have just been taught one of the subtleties of a high level performer. The skier's pre-race mental preparation should tell you a little more. Watch for his physical reminder the next time you watch an athlete rehearse for the downhill run. This visualization technique applies on the slopes, the golf course, in the corporate board room, before an interview or phone con versation. Now use it. It works on your self-esteem, your health, and yes, even in the trading room. You should now catch on that our mindset and attitudes are what produce results, not technique. Create a clear image of it to be, mentally rehearse adequately, role play that rehearsal in

what you wish to accomplish, see yourselfexactly as you'd like real life, use your physical reminder, and then become that im age of success for real.

1 69

Confidence Life is not always a matter of holding good cards, but sometimes, of [having the confidence] to play a poor hand well.

-Robert Louis Stevenson

Confidence is a state of mind. It is an inner belief in our abilities and is always accompanied by a quiet, open and still mind. It feels like an inner calm. In fact, we can't experience a state of confidence without having the sensation of an inner calm along with it. Notice a trend developing here? We 've just come across it again. We keep running into different descrip tions of attitude and states of mind. Returning to the words of Zen Master Deshimaru, "Any con-

flict, whether it takes place within the body and mind or outside them, is always a battle against the self. I don't think anyone "

who has ever traded the markets will disagree that trading is indeed a battle.

Therefore, all battles are ultimately against

ourselves; trading is an inward battle. It seems we have firmly painted ourselves into a comer that demands that we acquire a deeper understanding of ourselves and how to control and quiet the inner chatter of our minds to form an inner calm on com mand.

from the movie The Empire Strikes Back. We read where Yoda, the Jedi Master, was introduced to us in The Star Wars Trilogy. Yoda trains Luke Skywalker, a warrior, to use "The Force .. to develop his powers of concentration, foc u s on the here and now, and to We began Part III with a script excerpt

AERODYNAMIC TRADING

1 70

listen to and believe in his instincts. Now let me introduce you to the ancient Master after whom Yoda may have been mod

"The Force. " In 1 728, Samurai Chozan Shissai, wrote A Discourse on the Art of Swordsmanship in a series of wood-cuttings. eled and a closer look at the concept of

Life Force is the origin of life. If the Life Force detaches itself from its form, then death occurs. From mastery of action follows the harmony and balance of the Life Force; only then will the Principle of the action reveal itself of its own accord. When it is understood in one 's Heart (can also be translated as 'Being') and no longer generates doubts then action and principle converge, the Life Force is concentrated, the spirit calmed, and responses follow unhampered. If the actions have not been mastered, then the Life Force will not be harmonious and balanced, the ap propriate form will not ensue, and, therefore, one will not attain liberation. When there are irritations in the Heart, then the Life

Force will be inhibited, and the hands and feet will not perform their function properly. When the Heart is

free of irritations, then the Life Force is harmonious and peaceful. When calm and peaceful the "Life" Force is then lively and moves freely, and the Heart is with out rigid form: without strength, it is naturally strong.

The Heart is thus like water andflows with the Life Force. If the Heart (Being) is too deeply involved in tech nique this will interfere with the Life Force, and the

Heart will not be hannonious and balanced. One might say that this is like forgetting the beginning in search for the end. Yet it is also wrong to totally discard practice and say that it is unnecessary. The function of swordsmanship lies in activity and fonn. If its func-

Confidence 171

tion is discarded, what reference shall the Principle of its essence have? By practicing its function, one be comes aware of its essence, and it is in this awareness that the true liberation of the function lies. Essence and function have one origin: the Life Force. Thus, technique is practiced from the Life Force, but if tech nique is not mastered, the flow of the Life Force be comes rigid and the form unfree. -Translated and reprinted i n the book,

Cheng Hsin:The Principles of Effortless Power. Yoda was not an original creation of Hollywood film mak ers. It took some sleuthing to dig this up and dust it off, but I think you'll agree that it was well worth the search! Let's listen to the words of a modem-day samurai address the topic of "concentration. " Could this be the origin of Yoda's renown movie line . . .

"NO ! Try not. DO. Or do not. There is no try."

Modem Samurai, Zen Master Deshimaru writes: I am always saying we must concentrate "here and now," create "here and now." That way we become fresh and new. You must not rest while you are train

ing in a martial art. Doing it halfway is no good; try not, you have to do it all the way, give yourself wholly

to it. We must not have any energy left in reserve.

Concentrating means "all out," total release of en ergy; and it should be the same in every act of our Ii fe. In the present-day world what we see is the oppo site; young people half living, half dead. Their sexual

ity is half way too, yet they think about aex al work.

and the other way around as well . and everything they do.

ao

it aoe• with


But if you have exhausted all your energy, you can

take in fresh energy, flowing like the water in a stream. If you try to spare your energy in a fight, you can

cannot count on wasa, on technique alone.

not win. That's one secret of the martial arts . We

The Jedi Master, Yoda, was fashioned in the image of the elite ancient warriors, who were Samurai and Zen Masters. In one respect East and West have met in a comfort zone, through

In our Western culture, those of us not students of the mar

the character of George Lucas 's Yoda.

tial arts begin to get uncomfortable and squeamish over the words Zen, meditation, or instruction on conscious methods of posture and breathing. These require a different concept of time and demand a lifetime of commitment, practice, and pa tience, something we Westerners have been conditione.d to think of as a waste of time. That is not our fault, but it is our fault i f we remain ignorant. We are conditioned from birth to pursue everything for instant accomplishment and automatic reward. Our society is geared towards fast foods, quick studies, and one-minute managerial techniques. Our impatience i s a flaw, but imbedded within this flaw is our strength of spontaneity. So somehow in our preparations to do battle, or trade the mar kets, we need to learn how to blend our Western strengths of spontaneity with the discipline and strength ofthe Eastern mind. Wow, now there 's a challenge, but let's think this one through just a bit further. Our Western perspective requires instant accomplishment, but what can be more immediate and conclusive than Japanese

kenjutsu, sword fighting? What trader alive would not wish to acquire even a fraction of the renown mental skills, or even a glimmer of understanding of the Way of a samurai warrior, or the Way of a Kendo Master? (Japanese swordsmanship) Now, "they had confidence !", we might say in the West, or a reader

Confidence 1 73

from an Eastern culture might exclaim; "NO! That's shin, spirit mind-inspiration-wind-breath-intuition-soul-attitude ... all at once." So permit me to blend East and West further by sharing stud ies that have awakened me to Eastern culture and the Way of the Samurai. To those of Eastern cultural background, I mean no disrespect. I promise to be honest to the best of my ability to the teachings I have read from various mondo, question-an swer exchanges that have been recorded between disciple and master. My intent and wish is only to drive home into the thick skulls of my fellow traders some Eastern concepts that are ab solutely essential for trading and life, but are absent from our arsenal of Western beliefs and experiences. That is why Yoda became such a phenomenon within the Western culture; the character filled a void. Yoda was teaching Luke how to quiet his restless mind to achieve inner liberation and total awareness through the prac tice of Zen. Zen is the practice of meditation. So the Way to quiet our restless minds is through a daily practice of medita tion. Before Western readers conjure up images of smoking incense sticks and background sitar music, know that you have been tricked into doing meditation already. Sneaky of me, I know. The techniques I already described for improving focus, concentration, and practicing visualization are techniques of meditation. So shed the baggage that we attach to the word meditation; just let go of the anxiety resulting from our false perceptions. It is through visualization that we reinforce attitudes such as confidence, by replaying past successes in our mind through visualization. We then learn to concentrate on the feeling of inner calm that is associated with our state of confidence. This means that this mindset is repeatable. By recreating the atti tude associated with the success, we repeat the succ essful out come more often.


1 74

Sometimes an individual in a position of power or strength confuses confidence with an overinflated ego . They are small minded and weak as they are held captive by the attachments to themselves. They can be extremely vulnerable to external pres sure and any ideas that challenge their inner perception of se curity and status. Their projected self-confidence is about as firmly rooted as a house built upon quicksand. In a corporate environment these individuals are frequently the back-stabbers, the ones who quickly step in and take credit for someone else's work, or play a vicious game of boardroom politics. They are best left to step into a hangman's noose of their own making. Eleven years at Kodak was long enough for me to see a few fast trackers eventually hang themselves. No one set them up; nei ther did anyone offer a back door exit for them. They finally painted themselves into a lethal comer. Confidence does not in any way border upon an attitude of arrogance. When you meet individuals with a strong need to brag about their accomplishments to build themselves up, or to diminish others, beware. When they implode, they typically try to take others down with them. Give these individuals some distance so you don 't get sucked in by their own implosion in the trading room. So it seems clear what confidence is not, but what is the best way to illustrate what it is? Development of a confident atti tude is exceptionally well-defined in the movie Cool Runnings, the story of the Jamaican Bobsled Team at the Calgary Olym pics. The film shows how everyone, including the Jamaicans, believed their attempt to enter the Bobsled event was laugh able. The odds were against them; they had never set foot on ice. Then the Olympic committee lowered the qualifying time in the preliminary round in an attempt to block this team from entering the Games. Instead of giving in, the Jamaicans tapped their confidence, knowing they had foot speed that the other

teams did not have. Their running start helped to place them in

Confidence 1 75

the top qualifying group. This movie is their story of how their pride and confidence grows. It is not tied to winning a thing. They never had a chance of winning. The film shares with us how each individual finds his own center of balance and confi dence, which in turn nurtures the team •s pride in themselves and their country. When you find the joy and fun of testing yourself to perform to your fullest ability, without measuring yourse l f against some one else, you will be able to relax; in essence you become liber ated from the need to conquer. The visualization technique can be used to build our state of confidence. We have learned that we will perform as we see ourselves in our mind's eye. There are a few traps to watch for, such as forming false expectations. Another trap is forgetting the successes and focusing too much on the setbacks. While we can build our confidence by visualizing our suc cesses in minute detail, it is equally important to build upon our ability to form an inner calm. That inner calm has to become a retreat that we can enter whenever we are in need. Trading certainly creates a turbulent storm within ourselves. One exercise that was offered earlier allows us to reduce the painful noise associated with the screeching wheels of a train in the subway. You learned how to allow this noise to flow through your body, rather than hold onto the discomfort and let the noise build up within you. If you have practiced this exer cise, you have learned how to let go of the noise and the dis comfort. (These exercises all help to build upon one another... if you skipped that exercise you need to go back ... you aren 't ready for the one coming up. If you can't let external noise flow through you, you won't be able to let go of noise within your mind. That is where we are heading next.) As you stood on the station platform letting the noise of the screeching train flow through your body, the sensation you fel t was similar to lowering the decibels of that 10und and most

AERODYNAMIC TRA DING 1 76

likely the pain associated with the sound. This exercise pre pared you to deal with physical noise, an external source of tunno il. Now we need to address the inner noise ofour thoughts.

As with external noise, the body does not have to hold onto

inner turbulence. In fact, we must let go of it, if we are to win the battle against ourselves when we trade. As a result we must learn how to return our minds to a state of calm and relaxation, regardless of the source of the noise, discomfort, or distraction. The method used to free ourselves of mind noise is another meditation technique. It is quite easy. When we sit comfort ably, quietly, preferably with eyes closed, our mind begins to listen to the various thoughts attached to the emotions in our mind. We think of thoughts that frustrate, anger or trouble us; we will also have happy and serene thoughts. Simply take a quiet moment, let these thoughts come forward, and listen to them. Don't judge them. Don't dwell or become attached to any particular thought. Avoid becoming tense. Don't resist or react in any way. Let the thoughts flow into your conscious awareness like a movie unfolding before you.

Yourjob is to be

aware ofthem, notjudge them. These thoughts flowing under our conscious mind all have the power of subliminal persuasion. Like the subliminal mes sages of an advertisement, we are manipulated and subtly influenced and motivated without conscious awareness. As con fidence is a state of mind, reducing or releasing subliminal factors allows our confidence to exist without contradiction or challenge. We will be able to improve our focus and do, rather than try. Subliminal sabotage distracts from our ability to commit fully to our trading activities. Confidence is always accompanied with a sensation or feeling of inner calm. If you are a child ofthe seventies, you may have experienced the ritual of being given a mantra for Transcendental Medita

tion. It's just a hook, a gimmick, a tool to aid our concentration

and prevent our attention from wandering by using a repetitive

Confidence 1 77

sound or word. Some cultures and techniques focus on a pin point image such as a candle flame. We have the exact same sense of tranquillity and inner calm when we stare into a camp fire; or a roaring fire on a cold winter night. (I don 't think the glass of wine hurts this setting either.) By focusing on the fire we allow our thoughts to flow freely through us without attach ment. As a result we feel an inner calm as our bodies relax. Everyone has the ability to just sit for a few minutes with their eyes closed. The objective of meditation is learning to focus and give full attention to the current moment. This is not the time to take a vertical nap. We need to give our full con scious attention to watching these inner images. When we be come distracted by allowing our attention to drift off with a random thought, we need to refocus. We need to allow our selves to return to our inner observation post to view our thoughts. The more we practice, the easier it is to return to our inner sanctuary where we allow our minds and bodies to expe rience calm. It requires tremendous commitment to stay de tached, but the objective is not to be confused with trying to stop our thoughts. Thoughts come and go and that is exactly

· what should happen.

Effort is not expended to stop these inner

thoughts from flowing to our conscious awareness. Maybe only

1 0 minutes every day is needed, but it requires some practice daily. If you still need to ask, "So why bother doing this? What's in it for me?", recognize that at the very minimum, this technique is a stress release. Anything a trader can do to lower his stress level a notch is worth doing.

With regular practice, meditation offers us several important

skills we need in a fast-paced environment. Practice allows us to become less distracted by random thoughts and improve o ur ability to focus on the present moment with inner strength,

centeredness, and balance. We al so waste leas enellJY and have greater focus for the task at hand. We arc more aware of what

AERODYNAMIC TRADING

1 78

is happening, similar to increasing the depth of field with a camera. As an added benefit, when we meditate we connect

with our Basic Self and strengthen the communication link we

have with our intuition. As a result meditation expands the use of our senses. Meditation is the practice of pure awareness and allows us to experience a state of mind that can effortlessly absorb huge volumes of information. And for those of you who asked, "'What's in it for me?", a greater ability to absorb huge volumes of information is not a frivolous skill to develop as a trader. Right? So the next exercise is specifically designed to make it easy. You won' t even have to leave the trading room. Objective: Achieving Inner Calm through Meditation. Purpose: To increase our awareness and to assimilate

greater quantities of information. One way to allow yourself this break and not even leave the trading room is to make a tape cassette re cording for yourself. Put the headphones on. Tum the cassette player on. Tune out the trading room. The recording can be of your own voice reading the instructions that follow below, or one of the many en vironmental recordings such as waves rolling up onto a beach, or any peaceful sound track of your choos ing. People are funny when you have a headset on. They know you can't hear them, so they don't disturb you. If you close your eyes for a few minutes, they think you are just listening to music. Anyway, it takes away some of the restrictions we feel that make us uncomfortable in a Western culture. Exercise: Set aside as little as

I 0 minutes.

Co1?fidence 1 79

1 . Sit with your eyes open or closed. Adjust your posture so that you are comfortable. Perhaps put your hands at your sides. Begin by taking a few very deep breaths, allowing yourself to exhale fully to push out tension.

2. Imagine your body relaxing, starting with your toes. Bring a feeling of relaxation into your feet, calves, and thighs, then up into your abdomen and lower back, chest, upper back, and shoulders. Always start from the toes and relax upwards to your shoulders. Now relax your hands, arms, neck, head, face.

Let the

muscles around jaws and eyes relax. Let gravity make each part sink and become heavy. Do this until you feel physically comfortable and your emotions begin to calm and quiet.

3 . Adjust your posture so that your energy can flow more easily up and down your spine. Inhale a full deep breath into your lower chest, moving your shoul

ders as little as possible. Breathe into your lower chest several times; notice how you feel. You will likely have a sensation that the pain and tension in your neck and shoulders is diminishing with each exhale.

4. Straighten and lift your upper chest with a deep breath, so your spine is more upright. Notice as you do this you may also want to adjust the back of your head to the most comfortable upright posture.

5 . Watch as thoughts and images flow into your con sciousness. If you wander with a single thought, let go of it. Be aware of your thoughts, but don 't judge them or become attached.

6. Take several breaths to focus on your relaxed state. Realize by relaxing and attainina an inner calm, you have lowered your pulse from Mach ' to Mach I .

AER ODYNAMI�" TRADING 1 80

7. Now, open your eyes and refocus again on your

surroundings. Take off the headphones. You will find that you are able to both focus and concentrate more effectively than before your relaxation session. From ear lier discussions you already know the value of these benefits.

181

Conscious Breathing "Don 't forget to breathe/"

I was startled when a judge yelled, "Don't forget to breathe!" as my horse and I moved past the judge's stand prior to riding a Dressage test. The truth is I need a recording of that judge to replay whenever market volatility increases. I forget to breathe when I trade, as well. Only after a period of time do I become consciously aware that I am holding my breath. Guess what holding your breath does for your stamina and ability to focus and concentrate? You guessed it. It has a detrimental effect. It is not an uncommon problem. Many of us hold our breath unknowingly, and most of us are extremely inefficient about how we breathe. Singers and athletes are given lengthy instruction on how to breathe efficiently. Few traders have benefited from that in struction, unless they have also studied the martial arts. Stu dents of the martial arts require the highest level of instruction. They have good reason; their very lives depend on their ability to breathe correctly. A strike that falls on someone while they are exhaling is benign, yet the same blow delivered when they are inhaling can kill. With limited observation skills we can see that our breath and our emotional state of mind are mirror images of one an other. When we watch someone breathe, we can sense that person's emotional state of mind fa irly eas i ly. When we feel calm and relaxed, we breathe evenly, slowly, and with case. When we 're upset, our breathing patterns will be out of rhythm

AERODYNAMIC"" TRADING

1 82

and balance .

If we are sad, we will inhale forcibly (an uncon

scious attempt to replenish depleted energy levels). Frustrated and angry, we will exhale more forcibly (an unconscious re lease of excess energy). During a trade, if we become fearful or exceptionally tense, we can stop breathing altogether.

Breathing imbalances have a wide array of negative influ ences on us. They can aggravate any medical conditions we may have, hamper our efforts to receive and process informa tion, limit our ability to concentrate, and contribute to stress. Due to the pressure associated with trading, and just day-to-day life, most of us naturally tend toward constricted, shallow breath ing.

Compound that inefficiency with a trade that is going

against us, and suddenly our cardiovascular system is no longer capable of contending with the oxygen needs that our brain requires to handle the emergency. We may react too slowly to effectively minimize the capital damage. Worse, we might freeze and watch a bad trade turn catastrophic. And we all know that it takes many, many trades to recoup from one very serious blow to our account. Ordinarily, we breathe fifteen to twenty times a minute, but we breathe superficially, using only one-sixth the capacity of our lungs. Full breathing takes place at the level deeper than the thorax or even the diaphragm. One can learn to breathe more slowly, five or six deep, calm breaths a minute.

Objective:

A Conscious Evaluation of your Breath

ing Right Now.

Purpose:

Establishing a baseline from which to com

pare at a later time.

Exercise:

1 . Put one hand just below your neck. Place your

other hand on your diaphragm. (Above your belly-

Conscious Breathing 1 83

button and just below the "V" of your rib-cage.) No tice your breathing right now. Are you slouched over? Do you normally breathe through your nose or mouth?

2. Take three conscious deep breaths. Inhale through your nose, exhale through your mouth. Which hand moved? If only your top hand moved you are a typi cal shallow breather, using only a portion of your lung capacity. Now inhale and try to push your lower hand out rather than moving your shoulders up.

3. Exhale fully. Feel your shoulders, chest, belly and entire body relax and let go of tension. Exhaling fully will create a pressure within your abdominal muscles.

4. Make the breaths very slow and deep, but not to the point of strain. Let me guess, you had trouble with the exhale, and you first squirmed to adjust your posture . You may also have discov ered that you are

an

inefficient breather. That 's your starting

point. Now we need to address increasing lung capacity to increase efficiency. An exceptional exercise to help explain

this technique is one every competitive swimme r in the world

will know. Swimmers spend their entire training lives learning

how to breathe. When I teach people to swim, breathing is the

hardest thing for most to learn. It is because we do not know how to breathe on land. So you put someone in water, and it becomes a major obstacle. Every swimming coach in the world emphasizes breathing out for a longer and longer duration.

Swimming power comes from exhaling, not inhaling. We can

adapt this training to an exercise on land.

Objective: Increasing Lung Capacity Purpose: Greater Efficiency of our Cardiovucular

System. (So we can concentrate far more effectively!)

AER ODYNAMIC TRADING 1 84 Exercise:

I Go out for a walk. Count each step you take. Left, .

right, left. That would be a count of three. Inhale on a count of one, then exhale throughout the next two strides. Repeat.

2 . Once you get the idea of breathing in rhythm to your steps, begin your interval training. Repeat as you walk a full block. Inhale on the count of one, exhale throughout strides two and three. 4. Then extend to a five count. Inhale on the count of one, exhale throughout strides two, three, four, and five. Repeat this count of inhaling on a single stride and exhaling throughout the remaining four for at least another block. It takes time for the body to relax and catch on.

5 . Continue increasing the number of steps until you reach your comfort limit, maybe to a count of seven or nine. At your limit you are pushing yourself to exhale throughout the duration of the remaining strides before you can inhale again on the count of one. Stay within comfortable boundaries. The obj ective is to work up to a count of 1 5 . 6. Now do it backwards. If you worked up to seven, drop it to five. Take a breath on the count of one, then exhale throughout the next four strides. From five, drop it to three where you started. It is always impor tant to work back down to your starting point. Let me tell you up front what you are going to experience.

At first the exhale will fee l very forced. Either too slow or too fast, certainly not in sync with the count of 'one' when you feel like gasping for a breath. Breathing imbalances accompany

irregular breathing patterns. So it is understandable that any

Conscious Breathing 1 85

rhythm you try to force upon yourself will feel out of sync. This feeling does pass fairly quickly. For this reason it is extremely important to give yourself enough time at one specific count to allow your body to comfortably fall into sync with that particu lar rhythm. It just has to be a distance far enough to allow yourself time to feel at ease before the count changes. If you never feel comfortable . . . don't change! You will also find that it is the exhale that allows a sensation of calm to flow through your body. Let's conclude this discussion with the teachings of Master Deshimaru. This excerpt shows that breathing techniques, an integral part of the martial arts, can help us in our battle with the markets. It is important to concentrate on breathing out, on spreading and distributing, because breathing in, stock ing up energy, happens unconsciously and automati cally. The Japanese martial arts use this way ofbreathing out (yang), if possible while the adversary is breathing in (yin), because he is then at his most vulnerable. Through intuition, and that's the most important point, one must take advantage of the instant when the op ponent, breathing in, shows his weak point. You yourself must breathe out when you attack. In karate a blow received while breathing in can be dan gerous. So you must seize the opportunity while the adversary is breathing in, because then he reveals his weak point, his empty space. The opportunity always comes while the other person is breathing in because the body becomes lighter then, less concentrated. The in-breath of the other person offers an opportunity which your mind-body must know how to 1ra1p. 'To attack while the adversary is catchina his breath, show-


ing his weak point, the flaw in his defense, his atti

tude, that is the key. Breathing in is one great

suki or opportunity, and

too much tension, or too little, is another; in a tourna ment, it is impossible to maintain the same intensity of concentration indefinitely. At some point the atten tion wavers, and we show a fault, a suld, an opportu nity, which the opponent must be able to seize. This question of opportunity arises in every con test, however, not just in the martial arts - in argu ment, business. You must not show your weak points, either in martial arts or in everyday life. Life is a fight! When opportunity presents itself, you must leap upon it without thought. 1

From The Zen Way To The Martial A rts, by Taisen Deshimaru, trans

lated by Nancy Amphoux . 0 1 983 by Taisen Deshimaru. Used by permis 1

sion of Dutton Signet, a division of Penguin Books USA Inc .

1 87

Assertiveness vs. Aggression "The real pros, those who are winners, do what's required to score, then immediately hand the ball' to the referee. "

-Mike Ditka, Former Coach of the Chicago Bears

Ironically, one of pro football's most aggressive players and coaches is the person who most eloquently defined the differ ence between assertive and aggressive action. These comments were expressed by NBC analyst Mike Ditka concerning play ers who were showing off after a touchdown. His observation is exceptionally pertinent for a comparison of assertive and ag gressive attitudes given the inherent aggressive nature of foot ball. The spread between an assertive attitude and an aggressive attitude is a polar extreme. Assertion is positive, aggression is negative. Negative attitudes drain and deplete our energy re serves. They are also significantly harder to sustain. John Skiian was a special man. He was my most influential teacher, coach, and a surrogate parent. He's no longer with us. Together we resolved the toughest obstacle I had to face as a swimmer. Later, without his knowledge or help, I had to tackle the same problem when I first started to trade. It was the same obstacle, and the same solution. You see, I excelled at the I 50 meter Backstroke. (If you swim, you '11 see the problem imme diately.) There were only two Olympic backstroke events close to that distance: the 1 00 and 200 meters I wun 't fast enough to sprint I 00 meters and lacked the stamina for the 200 meters. .


It was the era of the East German machines. You had to sustain the effort, as you do with the markets. There was never any hope of dominating the event early and then holding off a late surge from behind. The late surge began when the starter 's

electronic beep began the race. The pace would build from there. It was John Skiian who uncovered that I was trying to anni hilate everyone else in the pool. The defeat was a result of attitude, not technique. The aggressive attitude to win through domination left me exhausted by the 3/4 mark of the race. Physi cally there was nothing left. His change in focus made a tre mendous difference when all else had failed. In Webster's dictionary, assertion is defined as "a behavior that emphasizes self-confidence and persistent determination to express oneself in a positive way." The assertive attitude originates from an inner strength . It is thereby sustainable for considerably longer periods of time and will have a positive impact on our staying ability and stamina. The assertive player is in sync with the conflict around him and enjoys a sense of joining and fusing with the environment through self-control. Being in sync and harmony with a market is one of the most important aspects for successful trading. There is an inner rhythm in your gut that tells you when you are in sync . Your intuition shouts "pivot point!" with limited technical input. You scale in and out of your positions with fluid actions. It be comes a dance with the market as you shift from long to short. It may even be similar to attaining the status of Top Gun pilot, exceptional skill accompanied with inner calm, self-control and unshakable strength. Before your balance sheet can tell you, your gut tells you: you lost it. "It" being that elusive harmony with the market. If we need to aggressively dominate the market, we cannot dance in sync with it. Being in sync requires a sense of inner calm and self-control. We have all heard buzz phrases like, "the

Assertiveness vs. Aggression 1 89

market is always right;" "don't fight the markets;" and "play by the market's rules to win." We've all heard these phrases, but why do we disregard them? The problems lie with motivation, tactics, and attitude. An aggressive behavior includes a sense of ruthlessness and domi nation and is frequently accompanied with a driving need to annihilate an opponent. It is not enough to excel and then just walk away, or as Mike Ditka said, just pass the football back to the referee. Aggression requires an outward focus and an op ponent or counterforce to be aggressive toward. The trap of adopting this mindset is that outward aggression depletes our energies. It generates tension, stress, and fatigue and usually ends up backfiring on us. In sport, the opponent nearly always replies to aggression with an aggressive counter attack. The counter attack always seems to come just when we have de pleted our energies and made ourselves vulnerable. The mar kets are also very capable of swinging a counter punch just when our energy reserves are fully depleted. When those energy reserves are depleted, we are most vul nerable to making mistakes. For example, do you have nine small winners and then proceed to give the profits all back to the market on the tenth trade? It is important to understand that aggressive trading cannot be sustained. It leaves us extremely vulnerable to counter market moves that we cannot react to when our defenses are down. That's why a team's aggressive attitude may win one of the quarters within a football game, but may not lead to victory. Trading is even harder. There is no two minute warning. We need tremendous stamina to sustain each day's competition into infinity. A different and more successful attitude is knowing that we can win, but we do not have to dominate. How? By changing our focus from outward to inward and concentrating on assert ing our trading skills, strengths, and abilities. Asserting ability will take less energy and produce less tension and strain. What


is more important is that assertion is always a more relaxed mindset than attempting a victory through aggression. There

fore assertion is more closely aligned to the mindset we adopt when we are in sync with the market. An attitude that focuses from inner strength also indicates that we are in control and take responsibility for our own ac tions. By having a focus that is directed inward to achieve, we establish a firm platform from which to learn, improve, and grow. This only occurs when we are in control and account able to ourselves. Trading is a war, but the markets have all the

ammunition

relative to our limited reserves. We have to rely on our inner smarts to win a few battles, and then recognize when to step aside when the odds are against us, not waste energy attempting to win the war. If you really think about it, the final outcome of this war has already been decided. Markets 1 , Traders 0. Aggression, with its outward focus, becomes entirely depen dent upon the actions of a counterforce or opponent. Failure is directed towards the opponent with better skills, greater speed, strength, whatever. The opponent was the cause of our failure. When we are aggressive towards a trade, we provide ourselves with the same scapegoat of excuses. "No one could have pre dicted that action from the Fed;" "no one is winning in this market;" "the pit locals have control." They, they, they all over again. .

The excuses are directed toward outward events. We write them off as out of our control, so we end up losing the opportu nity to learn from them. As a result, we do not learn because we are not accountable. The aggressive attitude is a stagnant growth curve. If you lost, what do you do next time? Try to be more aggressive, of course. The resulting energy drain and tensions increase. It is a no-win foundation for achieving suc cess. On the other hand, winning through an inner focus of asserting our own abilities provides the foundation to improve.

Assertiveness vs. Aggression 191

We are accountable only to ourselves on how w e use our abili ties and accept our skill level as always growing. If the market takes an unpredictable zig when we zag, it is not a failure. It is an opportunity to increase and add to our knowledge and skill. As a result we learn, we change, we grow, and we move for

ward. The aggressive trader can onl y try to learn how to be. come more aggressive. This is the exercise my coach John Skiian gave me, that got me onto the winner's stand. It was given to him by a Japanese coach. It works.

Objective: Conscious Awareness of Focus; Inwards vs. Outwards

Purpose: Changing attitudes from domination over an opponent to winning by exceptional execution of your own skills. When we admire certain traits in others, we frequently

have similar traits. In ourselves, these traits may be dormant. The first step is to visualize these traits in

others so that we can later find them within ourselves.

Exercise or animal.

1 : Identifying with an assertive individual

You will need a small piece of paper

and pen

by

your side. Relax, close your eyes. Visualize a person or ani mal that exemplifies assertiveness to you. It could be a cheetah, jaguar, dolphin, some other animal. It could

be a person, a famous person, leader, or friend. You want to see qualities of power, confidence, and strength.


Imagine all the qualities of your selected animal or person that make them powerful, both physically and mentally. Picture this person or animal at their best. Visualize their actions in minute detail. Now define the characteristic traits they demonstrate as they as sert their abilities. Most will find traits such as cour age, focused attention, and self-confidence. Feel the attitude they display and the mindset they seem to adopt. Now that you have seen these qualities in your mind's eye, you need to write down these traits on paper immediately. Not only must you see them in your mind, you must put them into a tangible list that you can see and touch. Make a list now. (We ' ll use your list for the next part of the exercise.) Exercise 2: Role playing to help you adopt the asser

tive traits of the character you have chosen.

After visualizing the assertive animal or person of your choosing, you wrote down the traits that you admired. Now picture yourself being that person or animal. Visualize the actions and feel the strengths and mindset required to role play that individual in your mind. Role play and literally act out the mindset you felt to assert confidence, power, and unwavering focus. By consciously adopting that mindset, and then fol lowing through by role playingyour visualization, you can teach yourself to focus and utilize that attitude when needed. There will soon come a time when you will no longer be role playing that part in a real life play; you will become that person or portray the atti tude and strengths of the animal you first selected.

Assertiveness vs.

The next step, when you face

an

Aggression 1 93

opponent, is to

draw upon this inward rehearsal. This progression of visualizing what you want, breaking down the traits, defining the components, and then role playing the part,

is precisely how to become what you want.

Once

you've felt it, you can become it. It's attitude that makes a winner and a champion. An inner focus means you are in control of your own actions. When your focus is directed outwards, you relinquish control, and you will always blame your shortcomings on external factors or your

opponent. B y denying accountability for the outcome, you can t

improve. Now become accountable for your actions. No ex

cuses remain . It 's up to you.

·


}

195

Courage "One small step for (a) man, one giant leap for Mankind. ,,

-Captain Neil Armstrong, Apollo XI

You can achieve most goals by taking small continuous steps towards that goal. However, we eventually come across a miss ing bridge in our life's path that requires one giant leap, or we fail to move forward. The decision I faced to leave the Kodak "mothership" was one of the chasms I encountered. At that time, I was struck by the number of people who said, "I wish I had the courage to do what you are doing." I did not understand at that time what they really meant. I do now. Many of those individuals are essentially doing the same jobs today as when I left Kodak. They are trapped and have abandoned their own dreams and aspirations. Some have become bitter; others just became prematurely old and resigned from life itself. Calculated risk-taking is living. Life without risk is merely existing. Living life to the fullest means pushing our abilities, emotions, and potential right to the very edge. Chuck Yeager coined the phrase that said it best, "pushing life to the outer edge of the envelope." There's no comparison between what•s lost by not trying and what •s lost by not succeeding.

�rancll Bacon

In Jean-Paul Sartre •s play No Exit. three people are trapped

in one room w ithout windows.

After considerable time in this


confinement, a door opens to freedom. But they end up staying in the confined windowless room because the unknown has become too great a risk to face. This does happen. Many of us choose a known suffering over the possibility of an unknown freedom. So if living is calculated risk-taking, to increase our odds for a positive outcome, how do we control the anxiety and fear that accompanies risk-taking? The answer is courage. Courage is not the absence of fear in the face of risk, courage is the ability to control the fear that accompanies risk. So the key is learning how to manage anxiety by fully analyzing, then understanding, and then fully accepting the implications of an associated risk. When a big risk contains hidden opportunities, or we deduce that the worst probable outcome isn't a fatal setback, we sud denly find the courage to take on that calculated risk. It is this progression of thoughts that builds our confidence, diminishes our anxieties, and then allows us to take a great leap of faith .

. . .risks are the spice oflife... You accept risk as part of every new challenge; it comes with the territory. So you learn all you can about the ship and its sys tems, practice flying it on ground runs and glide flights, plan for any possible contingency, until the odds against you seem more friendly. You know you can be ham mered by something unexpected, but you count on your experience, concentration, and instincts to pull you through.

-General Chuck Yeager,

First Man to Break Mach 1 : the sound barrier Yeager: An Autobiography.

Reprinted by permission of Bantam Books

Courage

1 97

Sometimes we can diversi fy the risks by choosing to make shorter-term goals that mitigate the worst case scenario should we fail. For example, you could establish a smaller position on a risky trade. This i s one approach, but I ' d rather continue ad dressing the more difficult situation when we face an impasse getting to our next milestone.

Objective: Leaming from Past Adversity Purpose: Assessing risk for the future. In the television show Northern Exposure, there was a brief segment where the following story was told by the Inuit woman. It went like this. An old warrior spoke of the time his son's only horse

ran away.

The neighbors all said it was bad luck. But the next day the horse returned and brought five horses with him. The neighbors all said it was good luck. As the son was trying to ride one of the wild horses he fell off and broke his leg. The neighbors all said it was bad luck. As it turned out, soon after the accident, military troops swept through their village and took all the able-bodied warriors with them to war. The son was spared. The neighbors all said . . . The moral of this story is that what they seem.

things aren •t ncceuarily


1.

Exercise:

Write down a painful risk you took in life, or busi ness, that later became a blessing or worked out on your behalf. What felt most difficult about it originally?

2.

Write down your initial fear(s) prior to taking the risk.

3.

Did the fear materialize? Was it justified?

4.

How did you feel after taking the risk?

5.

What do you see as the primary benefit of an other wise painful situation?

6.

Write down what good or positive lesson it offered.

7.

How did this action affect your life then? Now? How will it (or did it) impact you in 5 years?

These steps teach us how to reevaluate past risks we faced, and then to apply the same progression towards analyzing a

current risk. Anxiety diminishes with thorough preparation. In fact you may find the anxiety shifts from the risk of taking ac tion to the risk of stagnation through inaction. When we know that we can live with our decision and can accept the conse quences of the worst case scenario, the inner calm returns and courage moves in to push us forward.

1 99

Aspects of a Successful, Professional Trader: A Self-Test Throughout this book we have been working together to understand the importance of attitude and concentration. We have traveled a great distance together. We have learned through the words of ancient and modem samurai that all battles ulti mately are against ourselves. It is only fitting that you now face a midterm test. It is not a test to mark the conclusion of our training session, but a means to establish a measurement and foundation to help define the next action plan for improvement. Areas where you score poorly must be changed. Your very sur vival as a trader will depend on it. The following list was given to me by Joe DiNapoli in a private trading seminar offered by Coast Investment Software, Inc., 6907 Midnight Pass, Siesta Key, Sarasota, Florida, 34242. This list was given with the following instructions: Rate yourself on each of the following items between one to ten. Ten is outstanding or exceptionally strong, five being average, one being exceptionally weak or absent from your characteristic traits all together. When you rate yourselfwith a five or less, that aspect, if left unattended, will become your undoing as a trader.

I played Joe's game. I rated myself on each item in the list. When it came to "an ability to release tension," I pvc myself a 2 and a pat on the back for being honest.

proceeded to do nothing about it.

I chuckled, and then

;'{l'JA MIC

I ��

TRADl�----

emely sick, an emotional basket . t ion. I h"it bottom, total burnout. AV'-in need of hospittlh:ta Joe warned me that this would of that sem.infif, . appen, he said, because we were I ae knew it would b e same pa1? of self-de�truction. I ,,��' he had takett tb seco�d. I ve got staymg power, ,1 ,1��d hts warning fof a won t happen to me. (Ego speak. , re �-e, inner focus, no ough to �o� intellectually what en ot e , at ly is it n un I ��rt yoll have to hve it. .) 1�scussed so far, 1 I was told by two doctors to get ��J!te implosion caf11C? _ for me. My em we JOb would do it �trading job or r , ·t need any me&citl reasons, I was tail-spinning into d ever experi enced . I ended that �t fmancial hole l titi ,��111 22% in my ruwres account. That was the year evay. As Joe said to me, "You' re ill my life went 11stf he easy part. That 's already been 1 ou 're done. That's t i get out �or at least six months and �ow you have to omethmg �lse. Go live on unem � dO ro h. th ug Go :/vs r something. Every trader who � 1 Go write a boo� o e pe feOIi', anything goes tloll' ugh this phas . No one esca s. g you'll never trade way th"nk· tS m 1 ti p n u s, pe yo ste · b�p i d when you do, you' ll come back 1 tfou 'll be back. J\.fl 1' tremendous profits." lptl ros sional and ma e ict, uncomfortab le when I didn 't '* ail . ht I as (ig � w an rf° re out o f control . I had to learn e fo ef ,W��tion on, and th inarkets h�d over me. Been there. k the control the rogression that was required to pV Moved on. Tbe p i pa fu1, led to tremendous hard�h9t· � 1�:;son was extrenteJY m � ffe the way, and q�ite literally could have ended my 110� to you, if it has not already. Now ped it will happe:JJ ned on Joe's list. Then create an f tf on each item de:fl esses you uncovered. We have e io address the w�� n s 1111f techn iques yotJ peed to "'.ork on any weak esse A n A l..a.bd my warn i ng, you Will even tual ly � �i• year l ater I was extr

�1 1�e �an�

·

�

t

t

rl tti ,

•

1if

.

/'9nu ar

Aspects of a Successful, Professional Trader: A Self-Test Low Independence:

1

2

3

4

Avg.

5

6

7

8

9

High

10

(Do you need t o call and ask others what they think about the market, or do you make a decision in total isolation from everyone else?)

2

3

4

5

6

7

8

9

10

Discipline without anguish:

3

4

5

6

7

8

9

10

Stick-to-it-ive-ness:

1

(Be careful not to confuse this with compulsion and addiction.)

1

2

(Trading the wrong time frame can contribute to a lower score here.)

An ability to take the Responsibility for Your Own Actions:

1

2

3

4

An ability to learn from your Mistakes:

6

7

8

9

10

3

4

5

6

7

8

9

10

Your ability to Release Tension:

1

2

5

1

2

3

4

5

6

7

8

9

10

1

2

3

4

5

6

7

8

9

10

A Sense of Humility:

( Excessive egos must be down graded here.)

Knowledge of the Market:

1 Experience in the Market:

1 Knowledge of Money and

1

Reallstlc Expectations: I

Your

2

3

4

5

6

7

8

9

10

2

3

4

5

6

7

8

9

10

2

3

4

s

6

1

8

9

10

2

3

4

S

6

1

K

-

-

Self-Manaaement:

ablllty to act on what You See:

10


address these weaknesses. If not now, you will certainly de velop the need later when that weakness becomes your self destruct button.

This section began with a excerpt from The Empire Strikes

Back, and it is time to return back to Yoda, Jedi Master. If not before, you should now grasp the full depth of the meaning of Yoda's words . You are becoming a Jedi Trader, as you learn to liberate your mind from distractions and become aware of all around you. You are in essence becoming a Zen Trader. You have learned that with inner control and focus, you can build and nurture your skills and abilities. You have become account able for your actions. You have learned much. . but your train .

ing is not complete. . . we have yet to discuss the dark side of "The Force. "

Aspects ofa Successful, Professional Trader 203

THE EMPIRE STRIKES BACK

EXTERIOR: DAGOBAH - DAY

With Yoda strapped to his back, Luke climbs up one of the many thick vines that grow in the swamp. Panting heavily, he continues his course - climbing, flipping through the air, jump ing over roots, and racing in and out of the heavy groundfog. YODA: Run! Yes. A Jedi's strength flows from the Force. But beware of the dark side. Anger. . . fear. . . aggression. The dark side of the Force are they. Easily they flow, quick to join you in a fight. If once you start down the dark path, forever will it domi nate your destiny, consume you it will, as it did Obi-Wan's ap prentice.

LUKE: Vader. Is the dark side stronger? YODA: No . . . no . . . no. Quicker, easier, more seductive.

LUKE: But how

am

I to know the good side from the bad?

YODA: You will know. When you are calm, at peace. Passive. A Jedi uses the Force for knowledge and defense, never for at tack.

LUKE: But tell me why I can't. ..

no, there is no why. Nothing mo re Clear your mind of questions. Mmm .

YODA: (interrupting) No,

will I teach you today. Mmmm.mmm

AERODYNAMIC TRADING

204

beeps in the distance as Luke lets Yoda down to the

ground. Breathing heavily, he takes his shirtfrom a nearby tree Artoo

branch and puts it on. He turns to see a huge, dead, black tree, its base surrounded by a few feet of water. Giant, twisted roots form a dark and sinister cave on one side. Luke stares at the tree, trembling. LUKE: There's something not right here.

Yoda sits on a large root, po/dng his Gimer Stick into the dirt. LUKE: I feel cold, death.

YODA: That place . . . . is strong with the dark side of the Force. A domain of evil it is. In you must go. LUKE: What's in there?

YODA: Only what you take with you.

Luke looks warily between the tree and Yoda. He starts to strap on his weapon belt. YODA: Your weapons ... you will not need them.

Courtesy of Lucasfilm Ltd., © Lucasftlm Ltd. All rights reserved.

PART IV The Dark Side of Trading: The Obstacles, Addictions, and Inner Anxieties

AEROD YNAMIC TRADING 206

Part IV: The Dark Side o[Trading 207

We have seen the enemy and they is us.

-Pogo

The time has come to face the Market Wizard hiding behind the curtain of Oz. The control panel that ultimately dictates all our trading wins and losses is located right between our ears. Our trading performance depends on how well we have learned to tame our own inner demons. Our P/L will never be deter mined by our ability to forecast the markets. Some analysts call market moves exceptionally well, but that doesn � mean they

can trade that move. Why? Because trading does not depend on our indicators, methodology, or even our level of experience. Even with solid money management technique and analytic skills, there can be no success, because technique alone will be insufficient. It comes down to how well we understand our selves under intense fire, and how well we've learned to calm our darker side when the stakes become exceptionally high. You have read the words of ancient samurai warriors to modem day champions and know it all boils down to the same single question, "Are you sufficiently liberated from your inner anxi eties, addictions, fears, and deepest emotions?" We have indeed come face-to-face with the enemy, and it is within us. A word of caution to those who have just jumped directly to this section without having read the prior chapters. You may be eager to read the concepts that follow because the chapter headi ngs read like the most direct way to the bottom line, hut

you are not equipped to make the needed chang�., In your.\·elj: The prior sections have prepared the reader through a time-

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tested progression of developing mental skills and attitudes to be open to the discussions that follow. There has also been a subliminal bridge constructed to help you straddle the bound ary of Eastern and Western cultures so that we may now ad dress a fairly difficult concept for those of us living in the West. In essence you are limiting your awareness and are trading with only half a deck. If you lack the patience, or drive for the preliminary work, or are still always focused on the future and never the present, that's OK, too. Accept you are still focused on the technical mechanics of trading. There is nothing wrong with this. The Chinese say, "a journey of a thousand miles begins with a single step." You are chipping away the tip of an iceberg whose real mass lies below the surface of the obvious. You have a thou sand miles to go, one step at a time. These aerodynamic trad ing techniques will let you fly a part of that journey. It is only when, and not if, you experience a major trading slump, or reach total burnout, that you will become convinced that there is much more to trading. Eventually we must let go of our beliefs that trading success depends entirely on money management and the mysteries locked within the charts. Hope fully this rude awakening occurs before experiencing burnout. However, if you are as stubborn as I was and have to hit bot tom, know that on the other side of extreme pain is inner free dom.

209

Emotions We tend to think of the rational mind as a higher order, but it is the emotional that marks our lives. One often learns more from ten days of agony than from ten years of contentment. . . Some Men are more Perfect than Others -Merle Shain

Can following strict money management guidelines for stop placement also control our emotions? Many traders believe so, but can it? I recall one trade, out of thousands in that terrible -22°/o year, that forced me to reevaluate the relationship between money management and emotions. When the S&P market opened on October 5, 1 992, I was already 20% short. Additional selling near the open increased the existing position to 55% short. Suddenly, without warning or news, the S&P market began plummeting in full points to wards the first limit down at - 1 2.00. This was not a market to chase and instincts warned me not to add to my existing posi tion. I elected to sit back and monitor the fall, having caught the start of the move. Somewhere near -9.00 S&P points it became very apparent that sitting on the sidelines 55% short was not sitting well with my employer. Soon I went against my instincts and began to sell into the shallow retracements to extend my exposure to 73°/o short of what I'd normally trade. Why only 73% short and not up to 1 00°/o? A sanity check

prevented me from establishing a nonnal position at that time. Keep in mind that there isn 't a single market scenario that will ever justi fy exceeding your sanity check boundary. There are


always two independent calculations for risk assessment: one is for stop placement, and the other is an attempt to calculate an absolute worst case scenario should everything, and I mean ev

erything, go wrong. If you could not get out of the market for some unforeseen reason, where might the dust finally settle so that you could halt the financial damage? In my worst case scenario, I try to ensure a catastrophic loss will not exceed 1 0% of my total capital available for trading. That way you can still trade another day should everything blow up in your face. You pray that you never experience your worst case scenario. A 1 °/o or 2% capital exposure is still high for any single position. However, every professional trader eventually will experience

Armageddon.

So on this October day, I only established a 73o/o short posi

tion as the worst case projected a I 0% capital loss if the market closed just above the previous day 's close. With the market currently in a free fall, it had to be a low probability. Anyway, I would hardly sit back and do nothing as the market rallied 1 2 or more points against me. I would say the odds for this worst case scenario developing on this day were slim to none . The S&P market was soon locked limit down at - 12.00 points. Trading would then be halted for thirty minutes and the session would reopen with even wider limits at -20.00 points. The trading halt is supposedly designed to let traders con template the errors of their ways and cease such foolish capitu lation. In reality, when the market is truly in a serious decline, it will only serve to make things worse. The trading curbs in the DJIA will force mutual funds to short the S&P to hedge the losses developing in stocks. There will be a day when the S&P market will lock at the first limit down, and then immediately fall to lock limit down at the newly expanded limit. We will experience several days like this sometime in the future, but October 5, 1992, was not the start of this anticipated large scale collapse.

Emotions 21 1

My eyes were glued to both the Reuters and Telerate screens. The two independent quote services had been installed to en sure backup service should one system fail or go down. We even had battery power backup to minimize that potential prob lem. I traded from a private office that was very isolated and distant from the main trading room shared by several traders. There was never any reason to commWlicate between these dif ferent trading areas within the same firm, so it would not have been known by anyone that the infonnation displayed by Reuters and Telerate in my office was very different from that being transmitted by CQG throughout the main trading room. On that sunny day of October 5, 1 992, both Reuters and Telerate in Boston displayed that the S&P market was locked limit down. In reality, the pit in Chicago was developing a ballistic S&P short squeeze rally! The first alarm occurred when the Telerate screen gapped up recording a trade +4.25 points off the low. My first reaction was that this was just a bad tick. Looking over to the Reuters system, they still showed the market was locked limit down. Relief overcame me as my suspicions were confirmed about the erroneous market quote. However, in the fraction of time that it takes to glance over to the Reuters system and back to the Telerate system, the Telerate chart had expanded the first bad tick into a rising fast market. I had three different phone lines that could be used to access the floor. I grabbed the private dedicated line that was a direct link. The phone automatically dials the number. I waited for the connection to be completed. Instead I heard: "We're sorry. Your call cannot be connected as dialed. Please try again." "SAY WHAT? IT CAN'T BE!" While the phone fails to connect to the S&P floor. the Reuters system began to mirror image the Telerate system showing a ballistic rally unfolding with the market now up +S .40 points

AER ODYNAMIC."' TRADING 212

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I

Emotions 213

off the lows of the day. . .and still climbing. "GET ME OUT OF HERE!" I grabbed the second phone that was a conventional public line. Again I used the speed dial setup to attempt to reach the floor. There was the familiar sound of the automatic dial, a connection, but then . . . "We're sorry. We are experiencing diff. . . . " SLAM. Now bordering on panic, I grabbed the third phone line on an independent circuit to contact the floor. There was the fa miliar sound of the automatic dial, a connection, but then . . . "We're sorry . . . . " SLAM. OK, keep yourself together. . . the market is now +7 .00 points off the low and still climbing. However, the market is a full 5 points away from the catastrophic worst case scenario that was calculated. SO THINK! What's the common element between these three independent phone lines? YES! They are all MCI lines and pass through the newly installed main switchboard. There must be a problem with the switchboard that went on-line only last week. The traders had all been given instructions how to use a predial code to bypass the cost saver network that utilized the main switchboard, so the instructions were extracted from the top drawer of the desk and immediately executed. A pause, the connection, and then, "We're sorry. . . " SLAM. OK, maybe it's MCI itself or the building. I can use the dedicated phone jack for the modem that is still serviced by AT&T. BUT HOW? ! The other phones on my desk were all hard-wired directly into the wall and could not be disconnected. Just then I recalled having seen a standard phone in the comer of the office. I dove for the modem line, but restrained from ripping it out of the wall and possibly destroying my last link to the outside world. SNAP. The plug fit. (Many offices use two different phone jack standards as ours did. This could have been fatal ! You can also see why it is important to have cel lular phones for your backup. )

AERODYNAMIC' 7�RADlNG 214

Another problem . . . I didn't know the nwnber! With the speed dial feature

on

the other three phones there was no need to

memorize the phone number to the floor. Fortunately I had once anticipated this problem and had etched the number to the

S&P pit on one of the computer frames. (Paper can drop off,

pencil can be rubbed out, pen smeared; etch it! ) I dialed the number and finally made a connection to the floor. All the while the market had continued its rocket ascent. A short horizon Elliott Wave pattern showed that the market had just ended a small fourth wave down within a vicious third wave extension. This was the best place to cover the entire position, but the market would not have been able to absorb the entire size of this order graciously. I entered an order to unwind half of the position "at-the-market," something you just don 't do· unless you are throwing in the towel to save your hide at any cost. By this time, it was my hide that was in j eopardy

and it

was going to cost! I had never entered such an order and the floor knew it. "Repeat that order." "You heard it. . . 'at-the

market ." The market runs against me another 1 . 25 points, then '

the rest of the position was unwound at any gracious retrace ment that could be found. In hindsight, the whole position should have been thrown into the pit at the same time. Bad situations just get worse. The trading session eventually closed that horrendous day just slightly off for the day. Incredible. Total damage: -8. 7% ofmy total capital in only four hours of trading. Poof. Everything that could go wrong, did. It was the

first time I had ever experienced the Armageddon scenario. The only saving grace was that the risk management calculations had actually worked. The risk management criteria had also served to keep my emotions in check so that I could think

through the crisis without uncontrolled panic. I did not believe

it could ever happen to me.

·

The phone company later determined that the phone service between Boston and Chicago had been seriously affected by a

Emotions 215

fire at a major switching station. The MCI representative tried to dissipate my anger: "But madam, the disruption in service was only for a limited period of time - less than an hour!" This "brief' service disruption explained the quote differ ences between vendors . Reuters and Telerate were adversely affected by the same major fire. CQG was not affected, as its data feed used a different technology. (Yes, I now install differ ent data feed technologies for backup as well.) The worst had happened and I had lived. There would be another day. I had substantial capital remaining to dig out of this major loss. I knew I could come back. Things were going to be OK. Or so

I thought then. It took little time to discover that while I had the positive attitude to dig out of this hole, and retained confidence in my technical indicators and trading ability, there was still some thing very wrong that I did not understand at the time. Attitude and technique were suddenly not enough. What was missing was the stamina and energy to continue doing battle with the markets. Soon, suppressed emotions began appearing in the form of physical illness. The comfort zone with trading hun dred lots soon dropped to 50 maximum, then 1 0, finally just 5 cars would lead to the same mad dash down the hall to the washroom.

I was sick.

Without knowing it at the time, I had

come face-to-face with physical exhaustion and emotional burn out. I had depleted all of my reserve energy. The fight and energy were gone, and I didn't know how to go about healing myself. What

I

didn't understand was that in a competitive

environment there are three facets, not just the two of tech nique and intuition. I did not have need of the third

aspect as

my former competitive experiences had always involved the support of team members. a coach, a corporate mentor, or peers for moral support. No one was there this time. Why dJd I phy.vi

cally fall apart? Why did I lack the energy to bounce back ?

Why couldn � Ifind the energy tofight baclc? Why was thi.\· time

.fo dlfferent?

AERODYNAMI< . 7,RADING

216

All my whys" were answered through further study of the martial arts . In the martial arts, there are three essential train ina aspects : wasa, technique; Id, energy; and shin, mind/spirit/ ..

intuition. We have already explored the training similarities

and benefits for traders with the technique and intuition aspects of the martial arts. We learned that ultimately it is our state of mind and intuition that takes precedence over technique. It is Ki, energy, the second aspect of martial arts training that ultimately dictates the strength and power of our state of mind and intuition.

Ki is the power of our inner energy flow. Ki can

also be abused and damaged. The trade I just described was not catastrophic to my trading capital, but was total annihila tion of my Ki, my inner strength and energy. When we think of someone who is weak, we might picture someone who speaks very softly, their body language shows introverted qualities such as slouching over, and they have trouble looking others directly in the eyes. They may appear handshake. Such individuals have a weak ki. Their inner en

physically frail as well and have what I term as 'a dead fish' weak Id, so what causes the change?

ergy flow is very weak. We do not come into this world with a Emotions are a pure energy moving through us without ob

struction. This is not the energy that allows us to lift weights, work hard, or swim long distances. It is a "feeling" energy that

moves us to pursue these activities. As infants, we didn 't know

what anything was, but everything sure looked interesting. With unobstructed emotional energies we felt naturally motivated to explore, touch, taste, move, learn, act, and discover. Unob

structed emotions don't imply we· always felt happy, but when we felt sad or afraid we let the feeling flow, and then let go of it. We could quickly return to our natural state of free flowing openness and joy. So what happened to us? Now we are ashamed to show anger, embarrassed to show sorrow, reticent to express joy, and

Emotions

217

some of us are so out of touch with our emotions we no longer know what we feel. We become so used to living life in shades of gray that we forget what life felt like in vivid color. We are taught to suppress our emotions since our childhood, but in order to reexperience the aliveness, the excitement, and the in credible motivation we felt as infants, we need to clear the ob structions that block the free flow of feeling energy. The physical law of conservation of energy states, energy can neither be created nor destroyed. Energy can only change from one form to another. Light can change to heat; heat can tum into mechanical work; a latent idea can manifest itself into an action. In fact our ideas, thoughts, feelings and emotions are themselves energy. We can't even wiggle our toes without having first thought of the action. The energy of our thoughts makes all action possible, and every cell of our body is con stantly eavesdropping on our thoughts. That's why positive and negative attitudes can have such an impact on our health and our abilities. Generally we are unaware and take little no tice of how we go about sabotaging our goals and abilities by misusing our own energy. All the energy in the universe al ready exists and it cannot be increased. So when anyone speaks of increasing their energy, they are really trying to learn how to make their existing energy more accessible. So our job is getting the rocks and obstructions out of our energy hose so that the "water," our natural energy, can flow without obstruction. When we flow more freely with our natu ral energy, things seem to go our way and become easy for us to do. We feel strong and sure of ourselves. The way you feel when you are having a 'ten' day is ultimately what we would all like to experience more often. Suppressing emotions won 't produce more days at a 'ten' energy level, because this only shifts the inner obstruction to a new location . What we really want to do is clear the obstruction so that we have more energy accessible to us. Navigating through the dark side of trading is


really a journey of self-discovery, to remove our inner obstruc tions so that we become stronger.

To most of us, the word emotion refers to feelings or senti ments: positive ones like happiness, joy, and excitement, or negative ones like anger, sorrow, envy, depression, and so forth. As emotions are an energy, we can feel and sense these feelings from other people. Our energy fields are not isolated islands; they interact with those around us. Energy is dynamic. That is it doesn't stay put. All you have to do is study electrical energy to see how energy fields move around. They attract, repel, move, and interact, just as our own energy does. A room full of people creates an energy field that can be positive or negative, depend ing on everyone's intent. We've all had the experience with our families or other groups of entering a room and immedi ately sensing an energy field. Have you ever heard the expres sion, "cutting the tension with a knife?" According to the laws of electricity, electrical energy flows from a positive to a negative. Our brain energy is a measurable electrical energy that abides by the same laws. Our energy flows from a positive state to a negative one, and not vice versa. This means when you have a positive energy and come in contact with a negative energy, like lots of negative angry people, one of two things will happen. One is that the negative energy will drain you of your positive energy. You will feel tired and may become negative as well, or your high positive energy will can cel out the negative. W hen I experienced the loss on October 5, those around me, of the firm, became extremely antagonistic and negative. The principal himself proclaimed I would never recover from such a loss. Instead of support, there was only an intense energy drain, and soon I was so physically ill that there was no way of healing within this environment. That negative environment would literally suck the life out of your positive energy state. It will be extremely important to remember this when we discuss other aspects of the dark side

Emotions

219

of trading. What we are striving for is to nurture our positive energy and make it more accessible to us. This is how we de velop a strong Id. Master Yuno of Japan, who excelled to the 8th dan in kendo (swordsmanship) taught that preparation for any battle requires that you let go of your own inhibitions and fears. He teaches that this is the only way to bring about inner strength and enor mous energy, ki. This is illustrated in a Zen parable told by Master Yuno. Chi Hsing-tzu was raising a fighting cock for his lord. After ten days, the lord asked, "Is he ready?" Chi answered, "No, sir, he is still vain and flushed with rage." Ten days passed, and the prince asked about the cock. Chi said, "Not yet, sir. He is on the alert whenever he hears another cock crowing." When the prince's inquiry came again, Chi replied, "Not quite yet, sir. His sense of fighting is still smoldering within in him." When another ten days elapsed, Chi said to the lord: "He is almost ready. Even when he hears another crowing, he shows no excitement. He now resembles one made of wood. His qualities are inte grated. No cocks are his match - they will at once run from him."

AERODYNAMI(-. TRADING

220

221

Stress, Compulsions and Addiction Nothing so needs reforming as other people 's habits.

�ark Twain

The inner discomfort, turbulence, and pain we feel from pent up and obstructed energy is what we call stress. We are forced to find ways to reduce the stress to provide an escape from the discomfort, but relief is only temporary. The escape behavior is an energy pressure valve and when the pressure builds back up, along with the discomfort, our need to find relief returns. The compulsive habit can easily become a cyclical extreme that de velops into an addictive behavior. Some energy release valves can develop into physical substance abuses while others can be psychological dependencies that are just as addictive. Psychological dependencies can occur when we systemati cally overstimulate our natural adrenal system. It is the sharp adrenaline rush followed by the sensation of relief or relaxation that becomes addictive. Thrill seeking is frequently a common ground for adrenaline junkies. The fears associated with high risk behaviors such as skydiving, bungee jumping, driving fast, jumping horses, and even amusement park rides, all fit the pat tern of an adrenaline rush originating from fear, followed by a release of tension. Horror films also have similar elements as high-risk behav iors. These films contain fearful images that hold us captive to the screen; relief comes when the film ends or the director gives us a brief reprieve. Surprisingly, comedies that bring tears to


our eyes and cause side-splitting pain are similar to horror, in that laughter provides the mechanism for release of tension. These can all be important and useful stress releases.

Other outlets for stress reduction are overeating, sex, over exertion, and stress related illnesses and injuries. These behav iors all follow the cyclical progression of adrenaline rush fol lowed by relief or relaxation. Overeating is probably the most common outlet for lowering the body's energy level. We crave to eat sweets or pastries, cause a steep rise of blood sugar, then experience a corresponding drop. That doesn't imply that just because we have an urge to binge on junk food, enjoy a good wine, or occasionally get sick, that we have a compulsive or addictive behavior. It simply means that these activities pro vide us with a means to reduce our pent-up energy. When the need to attain temporary stress relief becomes a compulsive extreme, it can develop into an addiction. A bungee jump, a horror movie, a downhill mountain bike race can be an excellent release. Trouble is just around the comer, however, when we "live" for the release itself. All truly addictive behav iors, whether physical or psychological or both, serve to release blocked energy from the body. As long as the inner obstruc tions remain, the pent-up energy will return, and along with it the renewed discomfort and pain that necessitates our need to find some way to release it.

We cannot see our energy, Id, but we certainly do feel it. Our

perception of feeling high or low energy does not reflect our abundance or lack of energy surrounding us, but rather points to our own ability to access it, to feel "The Force", as Yoda would say. A good analogy is that we are always surrounded by air, but we still have to access it by breathing. While that access can be obstructed when we have a cold or hay fever, we can be invigorated when we are in good health and breathe in the fresh, crisp, fall morning air of a pine forest. When we feel most energetic, we feel alive. When our Ki, our energy is

Stress, Compulsions and Addiction 223

blocked, we drag, have difficulty thinking, lack motivation, and feel ''dead." You will recall that high energy fields flow to lower ones, or positive energy flows down to negative ones. When you are constantly surrounded by a negative energy field, such as angry or hostile associates, you are in serious trouble. You will find ways to release the stress, but will also deplete your Ki in the process. This leads to an energy crash and is fatal in any com petitive environment. Typically we minimize our discomforts by finding some kind of outlet for relief, but soon our inner obstructions once again lead to stressful pains and inner turbulence that drives us again to find an outlet for relief. The habit becomes a repetitive cyc le .

To break the cycle, we need to break down the obstructions. Our inner obstructions come in three primary fonns : mental, emotional, and physical. Mental obstructions include worries, con��ffi§.1_r�gr�ts, .re�ist��_e,,j_µggtn��!�.i-�cl .P�st ��o�jations. (HOG ! ) These thought forms all impose a tension on the body that blocks the free flow of energy. Like the analogy of water flowing through a hose, obstructions take away strength from the final output of the hose, thereby weakening ourKi and abil ity. Emotional obstructions center around forms of sorrow, fear, anger, envy, jealousy, depression, irritation, frustration, and rage. Though these feelings are generated by the mind, we feel these emotional obstructions specifically within our body. They lead to physiological changes, such as breathing restrictions and im balances, that also block the flow of energy. I f you take a moment to think about these emotional obstructions. there is an element of time associated with them. Fear is always of a future event and about the possibility of being hurt. Anger on the other hand, arises in relationship to a past event, such as having been hurt. The exercises in the second portion of this book become extremely important for developing our skills to

AERODYNAMIC TRADING

224

focus on the present moment, for they help to minimize these emotional obstructions. The individual techniques or exercises also provide us with the means to let our unconscious let go of suppressed and deeply held inner obstructions so that we can at least become aware of them. Then, when they step forward into our conscious awareness, we can do something about the obstacle. Physical obstructions stem from injuries, poor posture, and restrictive movements that are likely by-products of the mental and emotional obstacles we carry. Stress-produced illnesses and injuries are not themselves a physical obstacle, but a symp tom. Those of us who unconsciously use illness or injury as a stress release outlet do it by default. We become ill because we avoid or neglect other stress release outlets that are beneficial, such as exercising. Not every illness or accident is a subcon scious decision to release stress, but when we develop patterns of illness or injury, then we need to work on achieving new levels of well-being. That may require a lifestyle change. My one-way train commute to Wall Street from Connecticut consumed 90 minutes to two hours for one direction. Eventu ally that takes a physical toll on your body. I was constantly · fighting off colds, flu, and respiratory problems one after the other. As soon as the commute was removed from my sched ule, so were the string of illnesses. In our day to day lives we experience both acute and chronic obstructions. Acute obstructions are induced from temporary issues or difficulties. Our chronic obstructions tend to lie far deeper. They are hidden, repressed, and have likely been with us since our childhood. Though acute obstructions are painful and sometimes swift and dramatic, they generally have a very obvious source: "What do you mean the Fed just raised the discount rate again! " "I just broke my toe." "Ahhh, that was my parking spot!" And my most frequent one at the end of the month . . . "My American


Express bill is for how much?!" Our acute obstructions are somewhat fluid as they rise and fall throughout the circum stances of our daily lives. We can elect to routinely overuse one of our stress reduction outlets to find temporary relief from our pent-up and obstructed energy, or we can clear the obstruc tion. For acute obstructions, time will heal the broken toe, we will find ways to resolve our financial pressures, or we will find another parking spot. (Unless you live in Boston! ) Some of us will resort to chocolate, as I do, when I need a release from the drudgery of analyzing government bond spreads. But what about chronic obstructions? Chronic obstructions in the body, mind, or emotions reflect deep tensions, pains, and unresolved issues. These obstruc tions fester within us as physical memories and deep turbu lences. They remain with us no matter how good our current circumstance may be. It can be a beautiful day, things could be going our way, yet we will always see the "ugly" side of every thing as we view the world through distorted glasses. Deeper fears and chronic obstructions need help from a twelve-step program: Gamblers Anonymous, Narcotics Anonymous, Alco. holies Anonymous. There is need for a Traders Anonymous group. Anyone who has been forced to take a cold, hard look and actually focus in the mirror and see themselves in pain and trapped within the dark side of life, tends to develop an aura of authenticity about themselves that I admire. They no longer play "let's pretend." I 'm not a twelve-stepper, but I do know the first step is recognition of the courage it takes to acknowl edge our more addictive patterns. Addictions are a symptom and the more abusive and chronic addictions require hel p from trained specialists. The bad news is: trading can be an addic tion. The good news is: unlike alcohol and drugs. the cure d<>es not have to mean giving up trading pennanently. The exercises we practiced earlier offer us the means to iden tify and clear out many of the obstacles from within our own

AERODYNAMIC TRADING

energy flow. The greatest difficulty is always identifying our

obstructions so that we can then do something about them. Striving for a kind of emotional simplicity then is a valuable clement in the creation of our goals. Ifyou are unaware of your emotional patterns, look at the pictures of your life. What do the pictures of your environment look like? Do you see lack of space, confinement, discord, disagreement, lack of unity, fail ure, or repeating patterns of conflict in your life? Be willing to acknowledge that our inner obstructions will have a connec tion between our fears and the pictures we see of our environ ment. As an example, the fear of success will go on creating the similar pictures of failure, one after another, until it is cor rected. The fear of success is the obstacle that develops stress, which in turn leads to compulsive behaviors that we need to escape the pain. It is hard for us to strip down, simplify, and focus our thoughts over a period of time in order to quiet the inner jumble of blar ing radio stations within our minds. Concentration requires quietude, perseverance, and self-control. Concentration is a discipline. The reward for having the discipline to practice the numerous techniques described earlier is that our minds learn to focus on only what we desire to create. We do not have to be trapped within a bubbling stew of unwanted and self-destruc tive thoughts. The techniques and methods offered to you for visualization have another value. Visualization captures the energy of ideas. When there is only a vague notion of an idea that is hard to bring into the forefront of our thoughts, remember that every thing we see existed first as an idea that we entertained. Visu alization brings us into focus with the fuzziest and deepest no tion of an idea, as it links us with our Basic Self, similar to the process our dreams create when the Basic Self is given free dom from the controls of our Conscious Self. However, only visualization lets us remember all the details that surface .


Dreams are less useful and quickly recede out of our conscious awareness. Likewise, when you want to move your focus away from an inner obstruction that you have now identified as an obstacle, you need to work on changing the ideas as well as the self image in your mind. It is very much like looking at a 3 5 mrn slide projected on a screen. What you see on the screen comes from a slide within the projector. Any markings you make on the screen will not alter the original slide in the projector. It's like trying to cure an illness by retouching the X-rays, as come dian Jack Benny, the legendary tightwad, once suggested as a way to save on the doctor bill. Since visualized pictures are direct connections to the en ergy fields of our ideas, visualization also offers us the means to reprogram and neutralize the undesirable energies. For ex ample, how much time do you spend visualizing past events that you want to eliminate? We all have a tendency to dwell on the issues we dislike, often visualizing and re-living them with great passion and intensity. This only helps to keep the undes ired energy 'alive,' and works against the energy of any other positive images we may strive to create. Our undesired ener gies fuel our compulsions which in tum trap us within our ad dictions. The escape is not found by looking outwards. The escape from the pain of our stress and addictions can only be found within ourselves.


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229

Ego and Self-Judgments The true value of a human being can be found in the degree to which he has attained liberation from the self.

--Albert Einstein

Ego is the only rational explanation for one particularly ex pensive lunch on Wall Street. In fact, this astonishing lunch was not for a crowd of people, not even for an extravagant couple; just for an individual trader. A trader who entered a single bond order, established NO STOPS, then left the build ing for lunch. That lunch ended up costing $2 7 million ..... with

out the tip!

This memorable lunch occurred in the Summer of 1 99 1 . You have already met the diner in an earlier chapter. He leased the double penthouse suite with the awesome glass trading room overlooking the Manhattan skyline and the United Nations build ing. That day the Principal of the firm entered a private order unbeknownst to the main trading desk. This was common. However, this time he entered an order to double his original

bond position every two ticks that the market moved against him. Then established no stops . . . and walked out of the build ing for lunch! Sure enough, the Federal Reserve elected to use this very day and lunch hour to intervene within the markets. A fast market was soon underway against him . . and the brokers that .

had been given this order executed his instructions to the letter!


He was blown out of the markets in his private ac count. As a result, it started a chain reaction as the desk was notified that the private account now had insufficient funds to cover his trade. All positions for the trading firm had to be

closed immediately. The business accounts were frozen by the

time the Principal returned from lunch . . . 90 minutes and $27 million later. The next day, the situation was even more shocking than the events that forced the business to shut down. A mad scramble of vendors and creditors were busily stripping the offices. They were ripping out the computer screens, walking away with the furniture, literally stripping the entire penthouse floor. There was a panic unfolding as creditors worked to get back any asset they could lay their hands on. They were like vultures stripping a carcass. Somewhere in the scramble, the grand glass trading desk had been cracked, and scars marked the walls where the large computer screens had been rushed out of the room. A lone secretary was left standing on guard, trying to fight off the onslaught of vultures from raiding the files and business records. She lost. The grand hardwood floors of the sunken trading room were covered with dead wires and cables from the once highly productive nerve center of a high powered finance cen ter. Riches to rags. I recall shaking and showing signs of shock . . . not because I

had lost my job, which was bad enough, but because I had wit nessed the destructive power of the markets first hand. My shock was the sudden realization and acceptance that this could

happen to anyone when their ego was in complete domination and control. The firm's principal was aggressive, dominating, and had an ego so large and explosive that the broker who took the fatal order would not have dared to ignore his instructions. He was verbally, mentally, and sometiffies even physically, abusive. His every trade would translate into a personal victory or great de-

Ego and Sel:f-/udgments 23 1

feat and was a reflection ofhis own self-worth and self-esteem. When our ego is in control, we all attach our very soul to a win or loss. Losses become devastating, crushing blows. He had to conquer all who ventured into his personal battlefield - the market, or die in the attempt. In the end he opted for the latter, and his business vanished along with all those it supported. Much energy is wasted when ego motivates an individual to constantly defend his greatness. Ego forces you to compare your skills to others around you. There is a constant need to live up to self-centered illusions that create unnecessary and inhibiting anxiety and tension. The trader or athlete who needs to boast and impress others is usually doing so out of feelings of deep insecurity and uncertainty, wasting a lot of energy in the process. Enormous power can be reserved by limiting the desire for possessions, praise, and other external attachments. Such desires and attachments to medals and trophies, money, sponsorships, and accolades are a great disadvantage because such desires create tremendous inner tension and pressure. translates into

Ego

literally

the limited self, the small self in several Asian

languages. It also implies we need to learn how to

surrender

and abandon our desires to obtain credit or acknowledgment, to win others ' respect, love, and approval.

ment.

The key is detach

The more you detach yourself from yourself, the more

effective you become. That 's hard to do, but it is true. The less we focus on having to prove ourselves, and the more we assert our skills with confidence, the better we perform. Talented free-agent rookies, struggling to make a pro team, of ten doom their chances with mistakes born of trying too hard to prove themselves. One such free-agent walked into a New York Jets training camp several years ago, vying to replace a retiring all-pro linebacker. He stood on the sidelines for several plays . As he waited, a highly acclaimed draft-choice, competing for the same job, confidently focused on executing the specific drills

AER ODYNAMIC TRADING 232 as

they were defined. When the free-agent's chance finally came, he was ready to explode - the other guy wasn't even trying! On the first play from scrimmage, he blew over the tight end; crashed into the backfield, and nailed the totally un suspecting quarterback. The quarterback was Joe Namath. This true story about trying too hard was that free-agent's first and last play as a New York Jet. He shouldn't have sacked that quarterback; he was cut on the spot. Ego is significantly worse than an obstacle that hinders or blocks our energy. Ego becomes a fuse leading to our own self-destruction. The $27 million 'lunch' is an example of how our egos can misguide us into believing we can do no wrong. We get sloppy and lose our fear. Which is worse: no fear or excessive fear? I can't answer that. One makes us too sure of ourselves, and the other paralyzes us. Both are undesirable quali ties as both limit our abilities. However ego is likely more dam aging because when we focus on ourselves, we also isolate ourselves from the positive influences of others around us. We tend to have trouble letting others help us which only adds to our isolation. Not only do we waste our energy, we restrict and undermine our efforts to replenish our energy when we become run down. To a large extent, we make or break ourselves. Our ego demands that we judge ourselves based on how well we im press others and perform up to our own delusions and expecta

tions, a sure formula for self-destruction when the markets are involved. All that we have discussed about tendencies of ag gression and having to victor over something or someone to feel better ourselves, can be attributed to an overly possessive ego. The need to win becomes our measure of self-worth, a burden too great for anyone's shoulders to carry. We may choke at a critical moment, we may miss a signal on the screen, or block out the inner voice of our intuition when it tries to yell, 0Get out of the market. .. NOW !" Our own self-criticism turns

Ego and Seif-Ju dgments 233

our thought patterns from I will win" to "I must not lose," a sure game plan for heavy financial losses. We cannot profit in the markets by being defensive and fearful of losing. Of course we are going to lose sometimes! How else do we learn? Ego promotes harsh self-criticism which is just a setup for failure and misery. The mind begins to constantly find ways to confirm negative self-talk and sabotage our chances. Those who have images of success or those who visualize failure will both be right. We live up to the image we have of ourselves and go no higher. A win that exceeds what we believe we deserve within our Basic Self will soon lead to a loss in order to reestablish our inner balance and self-image. We will actually sabotage ourselves to find our inner balance. A friend of mine who once modeled in her teens is constantly struggling with her self-image and perceptions about her weight. As a teen aged model she was a skinny rail, but as a very strong and mus cular athlete training for the Olympics, she struggles with feel ings of being overweight. Despite body fat measurements that scientifically prove otherwise, she is on a never-ending diet that undermines her athletic abilities. Another example of unconscious self-sabotage is frequently demonstrated with lottery winners. The experience of winning large swns ofmoney develops considerable stress when the new millionaire's self-worth is unable to accept this new image. Some winners lose it all in a very short time. When you have gains in your trading account beyond a certain amount, does it ''bum a hole in your pocket"? Do you actually feel more stress as the profits in your account grow, less stress when an error in judgment wipes out some of those gains? I used to roll gains over into my Sterling or Yen account so that my domestic ac count was always digging out of a marginal hole. The change in emphasis from adding to prior winners, to diuing in to come from behind, makes all the difference I need to avoid uncon scious sabotage. When the foreign accounts were ahead I 'd "


split those profits into new accounts as well (always hedging the risk exposure to foreign exchange fluctuations).

Traders can have a problem similar to lottery winners. As an exercise, rate yourself on a scale of one to one hundred to qualify how deserving you feel you are of all the best that life has to offer. When we are very honest with ourselves and tune into our deepest feelings, we will give ourselves less than one hun dred. It shows we have to work on our sense of self-worth when we feel uncomfortable with the highest rating.

The cartoon character Pogo summed it up perfectly: "We have met the enemy, and they is us." Through lack of accep

tance and disapproval of self, we become our own judge, jury, and executioner. We feel an obligation to punish ourselves for

being 'bad' or undeserving. Our unrelenting self-criticism then inhibits our courage, confidence, concentration, hope, motiva tion, and excitement. We eventually distrust ourselves and aban don our developing skills. We are forced to give up when our ego is dissatisfied and unfulfilled. We move on to the next project in an effort to alleviate the inner turmoil and meet the needs of our ego.

It is helpful to evaluate your own behavioral patterns as pic tures again. The many choices we make to bring our environ ment into balance with our self-image creates a window into our unconscious. Can you picture yourselfblaming a poor per formance on your indicators, your money management system, your job, your neighbor's dog that kept you awake all night, maybe a slow computer? In those pictures, the blame will al ways be directed to an external factor. Recognize these pat terns for what they are - ego oriented. Next time you have a loss, change "It was because of my computer" to "That trade hurt like crazy, but I learned I now need to develop ... " The shift in focus will mean you can actually do something about it rather than just find fault or blame.

Ego and Self-Judgments 235

One of the things we are most attached to is our point of view. This baggage becomes rooted within our egos. I know when a friend of mine stops looking at the market and makes statements like, "I don't care what the indicators say. . it's going down,'' that market is likely destined to rally. I am guilty of the same thing. As soon as I start to skip over nwnerous models because there is no doubt in my mind what is going to happen, the market runs me over. Overconfidence and ego seem to go hand-in-hand. An open mind, a calm mind is willing to con sider other points of view before drawing any iron-clad conclustons. Finally, once a decision is made, should a trading loss occur, it is not constructive - indeed it is highly destructive - to denigrate yourself with epithets such as "I'm such an idiot," "I'm so stupid," and so on. Besides a poor inner image, our inner, or outer speech can also cut us down. We need to listen to what we are saying to ourselves. If we are always finding fault and reason for failure, we are giving ourselves negative reinforcement. To neutralize negative impressions rephrase the negative. An example would be "I can't because I don't have the money." A more positive approach is "I'm short of cash right now but am doing to change it." With the beginner's mind, it is important to accept that we are all students and some days our best will not be good enough on a particular day. Without the baggage of ego we will learn, we will grow, and we will improve without self-limiting boundaries. .


237

Fear of Failure "Young man, we have not failed 5000 times, we have successfully determined

5000 ways the light bulb will not work. "

-Thomas Edison

In our Western culture, it is said that "winning isn't every thing, it's the only thing." As professional traders, we know there will be periods when we will develop a string of errors, but tolerance of trading setbacks and losses will vary widely among employers and clients. Some employers do not mea sure a trader 's performance as it relates to the action within the markets. That means if you just trade one futures market and that market spends the year in a narrow trading range, you would likely only have a few opportunities to produce high return trades. Unrealistic expectations may lead to pressures that require higher capital risk exposure. This is a tough way to stay on an institutional desk for a long period of time if erratic risk man agement creeps into your trading approach. Wild capital swings are as lethal as adhering to strict money management practices that produces a flat-line on your equity curve. If not fired, there are lesser "punishments" such as drastic capital reduction to limit your account size, or removal from a high profile desk, or office, to one with limited action and commissions. For some traders, their fear of these "punishments" causes such tremen dous stress and tens ion that the anxiety itsel f actually helps to

produce unwanted results. Losing is viewed as so devastating


that it causes them to discontinue their efforts or quit the indus try all together. This mentality is responsible for much of the fear of failure

both traders and athletes experience. Failure cannot be avoided, and it certainly is not shameful. The greatest traders in the busi ness have all failed at one time or another, and so will we. The difference is how you handle it. There is a Buddhist saying, "The arrow that hits the bull's-eye is the result of a hundred misses." With every miss we gain new knowledge. I don't believe I'd have the sixth sense and intuition that I do have today had it not been for lots of errors in my chosen trading area - the very short time horizon in the S&P market. Fear from past errors adds an element of caution. When cir cumstances begin to feel familiar and you hear yourself saying, "I've seen this before, this move is taking too long to start un folding, GET OUT !" Don't waste any further time to debate the alternatives. Do it. Then back-test your indicators or deci sion criteria to build your confidence that you indeed made the best decision. Trading instincts can only develop through ex perience under fire. Competent money management skills are necessary to survive the early years and to offset the lack of experience and knowledge while first learning to trade. It is only through our failures and mistakes that we are given the opportunity for improvement. It is the most effective method for most of us to go beyond our present level of performance. Perceptions about a trading performance will vary greatly. We cannot control other people's yardsticks for evaluation. I was still reeling from my worst year, when a principal in a ma jor Chicago firm asked, "You only ended the year down how much? That's nothing for this year! " That individual then of fered me a base salary of $ 1 00,000 and 30% commission paid quarterly on a $5 million discretionary account. I turned it down. I needed time away from the markets to regroup. However, I'll admit that particular phone call and job

Fear ofFailure 239

offer did a great deal to speed along the recovery process and reinforced a truism: nothing is ever as bad as it seems or as good as it seems. We cannot control other people's percep tions and judgment extremes, so focus only on what we can control - each individual trade. When you experience a large gain, do you find yourselfplay ing the game, "Now-if-I-extrapolate-that-gain-forward-in-time by-multiplying-it-by-the-number-of-weeks-remaining-in-the year." Do you realize how you just set yourself up to fail? If you find yourself doing this, you just lost your focus for the present and have created a distraction. Just concentrate on what you can control: when to enter the next trade, or when to exit the present one. Accept that we will miss several big market moves along the way and are destined to miss numerous bull'seyes. Two currency desks of a major bank in New York were lo cated in separate areas. One desk always outperformed the other by a large margin. It was later determined that the primary difference between these two desks was the approach taken by the head traders. The head trader of the higher performing desk did not focus on or become obsessed with negative outcomes; he simply rewarded his desk for finding the solutions to dig out of inevitable setbacks, failures, and complex market scenarios. Freed from the pressure of always having to be right, traders on the more successful desk were more relaxed and less fearful of failure. As a result, they outperformed the other desk that was always obsessed with preventing negative outcomes. En vironment within a trading firm is everything. You can ' t do your job if you are afraid a bad quarter will cost you your job. Excessive fears of failure can be paralyzing. It m ight be caused by the trading environment or insufficient confidence in your trading methodology. Fear of failure can also· be ego associated. Only you can work through ego problems; you 're not going to listen to anyone else anyway If the problem is •

.

AERODYNAMIC TRA DING 240

insufficient back-testing because you don't know how to back test market signals, learn. This is a learned skill. There is no excuse for not doing it. Change the negative speech within you from "I don't know how," to one that is more affirmative, such as "I don't have much experience with back-testing my indica to do something about it." This shift in tors, and I 'm doing focus from the negative to moving a step forward to learn makes a world of difference. Then when we have a trading loss and learn from the experience, we gain the knowledge of when and where we need to be more alert. Fear is a natural emotion, a survival instinct that is extremely useful for a trader. Some fear acquired from past errors is nec essary to be able to trade well. If you try to fight or force your fear away, it just creates a counterforce that makes you more tense and anxious. A little fear can be a good thing. The ele ment of fear that accompanies an activity can contribute to an adrenaline rush as we discussed earlier. It needs to be con trolled. We often feel fear when an enormous task has to be undertaken. Rather than looking ahead, try dividing it up into much smaller and more manageable segments. Exercise, prepa ration, doing everything you can to unveil the unknown, and defining the worst case scenario are all methods that work to wards eliminating or reducing our fears. Don't forget the exer cise of visualizing past successes. This is a particularly effec tive method for dealing with fear. A friend ofmine is learning to sky dive, but her free-falls are made with an instructor, and she doesn't jump alone. Other wise it would be too dangerous. The sky diving school in Florida has the following slogan on the side of their plane: "You go up, you come down, no problem." But if you find yourself sitting on the edge of the plane preparing to jump, and then freeze, that's a big problem. When you ask yourself: "What's wrong with me?" "Why am I so scared?" "Other traders can handle this market, so why

Fear ofFailure 24 1

can't I?" Listen to this fear. This is our Basic Self telling us, "Don't continue. " If you are feeling much more anxiety than just caution, and instead feel endangered, ask yourself why you 're feeling that way. Have you prepared yourself sufficiently for the trade you are about to make? Do you have all the infor mation you need? Are you out of your comfort zone? Let your self be afraid and recognize when fear offers a sanity check of advice. Fear as a sense of caution and alertness is beneficial, and the

only thing we have tofear, is notfear itself, but having no fear. Some fear is essential, or we too may place a take-out order for a $27 million lunch!


243

Fear of Success You must do the very thing you fear most.

--Eleanor Rooseveft

Success-phobia is rampant in trading. If there is a perceived imbalance between what we believe we deserve and what we have achieved, then we may follow a substantial gain with a devastating loss by unconsciously sabotaging our trading style. Sabotage for other people may take the form of illness or injury just as they approach the brink of making a major breakthrough. One does not have to have an imbalance between self-worth and good fortune to experience unconscious sabotage. The enormous stress associated with success itself may contribute to a later performance decline because we become erratic and inconsistent. Success brings with it numerous negative fac tors. Friends may step back unable to deal with their own feel ings of envy. Other traders or business associates may become hostile towards you as they begin to view you as a threat to their jobs or as an authority figure. As you excel further, there are additional performance pressures and expectations to exceed or repeat the prior success. No wonder people fear success; it can actually bring about hardship. When John McEnroe de feated Bjorn Borg at Wimbledon, he seemed to find the victory more of a burden than an accomplishment. In his own words, "I couldn 't handle it well, and I don't know why." His game deteriorated for some time after that victory until he learned how to handle winning.

AERODYNAMIC TRA DING

244

When we are successful and have the illusion that we have "arri ved," the initial rush ofhappiness usually fades. This ini tial rush from success is soon replaced by discomforts and anxi eties that threaten other aspects of life that are important to our inner balance; family, friends, job associates. After all, if we are really good at something, we all tend to devote more time to that aspect of our life to become even better. This can only mean other aspects will suffer. The business world is filled with situations that create, culti vate, and teach us fear of success. With each new position comes the added responsibilities, the extra hours on the job, new tensions, anxieties, and stress. One individual at Kodak was promoted to the position of vice president at the age o f thirty-five. The new position radically changed his life, not only at work but at home as well. Peers at work became back stabbing enemies. Everything became more complex as he grew more accountable to a greater number of people. For his first five months he ran the halls constantly fighting low grade ill nesses. His performance suffered and took a nose-dive as he became increasingly unhappy. His family life was nonexistent, and his children began to treat him more as a stranger than father. All the commotion around the new job had taken a great toll. He eventually resigned from his position and the com pany. He currently has a much lower paying job as a traveling sales representative. He is aware that he is terrified at the pos sibility of ever being a success again. As soon as he excels he begins to miss deadlines and finds the sales within his territory begin to slip. These symptoms all point towards a fear of suc cess, and he will likely sabotage any effort to succeed in the future. Leaming to win is as important as learning to lose. Maybe it is even harder to learn to succeed because we certainly don't consciously sabotage our own abilities. Fear of success is one of the most difficult weaknesses to recognize. Probably most

Fear ofSuccess 245

of us have resisted success at one time or another. Becoming totally committed to excellence often means taking time away from something else that may put us in a position of painful repercussions. Family, friends, other obstacles get in the way, and we may get bogged down and fail to develop other skills we may have. If you tum your back on your talent, you create another pain that you have to contend with: growing older and constantly wondering what might have been. Regrets from not having pursued and developed a skill can actually become an even greater burden than the difficulties that come along with success. The choice is ours to make. If you have the slightest inkling or notion today that you may have regrets later, "go for it," while you are still capable. It may surprise you that fear associated with success is very common. One of my coaches gave a small quiz that involves a list of questions. Should you answer 'yes' to any of the ques tions, then it indicates a possible fear of success. Consider each of the following: 1.

If you succeed, do you think you will experience pressure from someone to perform even better in the future? 2. If you succeed, do you think your life will become

more complicated in any unpleasant way? 3 . If you succeed, do you feel anxious about the in

evitable decline that may follow? 4. Do you fear the enormous amount of work that

stands before you and the commitment you will have to make to yourself to be successful? 5 . Would you feel anxious or frightened i f your sue·

cess meant that you would have to be accountable to a greater number of people?

AER ODYNAMIC TRA DING 246

Answering "yes" to any of these questions may help you uncover feelings of stress and anxiety associated with success. Consciously or unconsciously you may decide to simply stay put and not pursue these skills leading to a discomfort. Simply because you have an ability is hardly a sufficient reason to go for it. We all have to decide what level of success makes us fulfilled. The decision has to be a conscious one.

247

Integrity Integrity supersedes all else because it puts the circumstance of the trade, the event, or an opponent into a position of irrelevance. You place yourself above the circumstances of a given situation, and this self-power is what leads to extraordinary performance.

The darkest side of Wall Street is without question the dart of the deal." It's not the "art of the deal," but the poison dart of which you must beware. They are everywhere and transcend all levels, from simple back-stabbing to extremely intricate schemes involving huge swns of money. The Wall Street envi ronment will expose you to a host of temptations and challenges to your integrity. Any time you combine runaway egos, greed, and enormous capital, you're swimming with sharks in mine infested waters. That's a given. ' Money comes and goes. We succeed and we fall short, but what does not have a cyclical nature is our integrity. Once it has been lost, it can never be regained. Sure huge sums are made through artful dodging and short horizon intellectual bril liance, but those individuals eventually implode as a result of their own schemes or by an anonymous tip to a regulatory agency from one of the many enemies they have cultivated along the way. What goes around, comes around... without fail. An event I witnessed raised many questions about the mean ing of integrity for me. Some believe this event was ground zero when the detonator was anned for the S&L implosion that "

•

AERODYNAMIC" TRADING 248

shook the financial bedrock of the United States. The events led me away from trading fundamentals and stories, to techni cal analysis, where I could escape the endless "stories." This particular story weaves an intricate web and still leaves many - perhaps most - questions unanswered. The key players have all faded into the background behind new events and new headlines. So just take this as a tale told through the eyes of a novice; fate just happened to put me in the right place at the right time.

The events of the day began when the senior partner from our firm and I stepped out of our hotel into the searing heat of a humid summer afternoon in Dallas, Texas. Our meeting was scheduled to begin at 2 : 1 5 PM and we decided to walk, but by the time we had walked to the curb we could feel our suits already clinging uncomfortably to our bodies and perspiration dripping down our backs. Today would become a memorable day, but not because of the record breaking temperatures for August 1 5 , 1 98 8 . David and I decided to save our suits and hailed a cab for the three blocks to our first scheduled creditors' meeting at the former head office of the First RepublicBank Corporation (FRB). FRB had filed a petition for relief under Chapter 1 1 of the B ankruptcy Code on July 30, and the court had already as signed its offices to the newly appointed U.S. Trustee. The bank had reported on July 1 9 a $758 million second-quarter loss. Following a $ 1 .5 billion deficit in the first quarter, Texas's largest bank had a stunning $2.26 billion loss for the first half of 1 988. The previous year, Manufacturers Hanover had posted a $ 1 . 1 4 billion deficit. The Manny Hanny federal bailout had put tremendous financial strain on the Federal Deposit Insur ance Corporation in Washington. The FDIC itself was begin ning to struggle. David and I had been sent to Dallas to repre sent our firm's substantial interest in this failing bank. The

Integrity 249

timing of our firm's purchase of FRB bonds would later prove to be an important factor. We crawled out of our cab and walked toward the shimmer ing, glass-walled building that reflected the high-tech, Dallas skyline. The interior of the building retained the image of the once prosperous bank. The marble floors were still highly pol ished, and the plants were well-cared-for throughout the lobby. Maintenance was still performed as if business continued as usual. Only the people were missing. With the exception of the creditors filing into the building for the day's meeting, there were no longer signs of the enormous activity that once hwnmed through this financial center. The employees had all vanished, innocent victims of circumstances beyond their control and understanding. The cramped elevator only added to my feelings of anxious anticipation suppressed with nervousness. A robust man in his early fifties held a cigar in the corner of the confined space. The smoke filled the car and made the trip to the ninth floor an eternity. As the elevator doors opened, we were met by secu rity officers who carefully verified our identity and then directed us toward Room 9E-2 l . It was once the executive dining room and struck me as rather Spartan for the clientele it had once hosted. The room was fairly large and, though we were very early, it was already filled with people. I didn't know who any of these individuals were, so David pointed out a few. The room was filled with portfolio managers of well-known insur ance and mutual funds throughout the United States. Numer ous others representing all segments of the U.S. financial com munity had traveled to Dallas to represent their individual in terests in the bonds which were now in default. Our firm was one of the largest bondholders, but in creditor

hierarchy, my col league and I were viewed no higher than vul tures - scavengers of the bond community. Once people dis covered who we were they would gradually fade away from

AERODYNAM I< . 'l 'RADING 250

our table to sit with old acquaintances, meet with a colleague, find a new acquaintance, or just grab a coffee, never to return.

This was a far cry from the warm reception I was used to when

I worked for Kodak. When we said we represented a junk bond firm based in Greenwich, Connecticut, I detected notice able panic in the eyes of our fellow bondholders as though our image could somehow be transmitted like the black plague. You see, a great many individuals and firms still carried the FRB bonds at par ($ 1 .00, sold in lots ofthousands) or better on their books. They were not required to mark-to-market the price of the bonds on their books each day, or even quarterly. Bondholders didn 't have to report the current market price of any issue on their books until the bonds were sold. That meant investment funds reported to their clients the purchase price (closer to one dollar,) rather than the then-current price of 23 cents on the dollar for Senior debt. Subordinate bond prices were much lower than that. So many in the room would elect to carry these bonds to their grave or leave the problem on someone else's shoulders by moving to a different job. Our firm's efforts to purchase more ofthese distressed bonds had put additional pres sure on the other creditors. So no one would want to be caught sitting at our table. It would raise questions among the other creditors if our tablemates had cashed out their bonds to us at these distressed prices. As a result, we were left with our own private table, though the room was extremely crowded as the meeting got underway. Two days preceding FRB 's filing for bankruptcy, a Wall Street Journal headline read on July 28, 1 988, "First RepublicBank

Bailout - Plan Choice May Be Near: Wells Fargo Bid Re ported. '' Correspondent Richard B . Schmitt reported that Fed eral officials were very close to choosing a bailout plan for the insolvent First RepublicBank Corporation. The prize was cer tainly not the defaulted real estate loans, but the credit card

Integrity 2.5 1

income flowing through the bank's holding company. That was the real cash cow for the bank; for that matter, most any bank. It was the holding company that housed the goose that laid that golden credit card revenue stream. Everyone was trying to struc ture a bailout plan so that they would end up in control of the golden goose. The remaining divisions and subsidiaries would be spun off in numerous directions as they were non-perform ing assets. The prize was the goose. This was no small goose. FRB was the state's largest bank, with total assets reportedly of $26.8 billion. Citicorp of New York and Wells Fargo had submitted bids for the holding company to the FDIC. NCNB (now NationsBank), had already established that they were keenly interested as well. The battle for the bank was heating up, and the final outcome was dependent on the calculations and deci sions made by the FDIC. The ultimate cost of this bailout for the FDIC was expected to rival or exceed the record 1 984 res cue of Continental Illinois Corporation, of Chicago. The cur rent estimates were now pointing to about $ 1 . 7 billion. The bidding war was high stakes roulette for the FDIC. Their reserves were low from several preceding bank bailouts. Credi tors believed the best bid was Wells Fargo's, but it might have been the most costly for the FDIC. Wells Fargo was well known for making acquisitions that were turned over for a quick profit. A quick turnover would mean higher costs to the FDIC as the non-performing assets would be spun off to a separate bank, likely requiring immediate write-downs and a rapid hit to the FDIC's cash flow. That was something the FDIC had to avoid. For a while, it even looked as ifFRB was aggressively still trying to restructure itself. Federal regulators had received a new recapitalization proposal in which FRB eliminated its plans to spin-off the bulk of its non-performing assets. In so doing, it was trying to show it was willing to reduce FDIC's exposure to the immediate write-downs. It would then attempt to raise one


billion dollars in new stock to recapitalize the bank holding company, feathering the nest of the golden goose. This figure of one billion dollars soon weaves an interesting thread through this story, the point being that FRB was desper ately in need of exactly one billion dollars. The recent FRB default allowed all debtholders to demand immediate payment of principal and interest. Full payment was neither possible, nor expected. However, what we the debt holders were prepared to settle for, and what the stockholders thought they were likely to get, were two polar extremes. It had been only six weeks earlier that we had attended the last stockholders ' meeting. Their naivete was saddening. They failed to understand that the stockholders had no real power. We were holders of substantial Senior notes and floating rate paper. Our firm, along with all other debtholders, fully intended to cram-down on the stockholders. The ' 80s were full of well publicized corporate takeovers. The banks that fell victim were not as widely known, but the practice of cramming-down on bank stockholders was no different from the way it was in a hostile corporate takeover. Both the Preferred and Common stockholders would be given token new shares - suitable for framing, but little else - in exchange for their present nearly worthless shares. On the other hand, the bondholders expected to fare quite well and repeat the favorable settlements that had occurred with Continental Illinois Corporation and First City Bank in Houston. No asset would exist once the creditors that gathered for this meeting had divided the remains. The stockholders' meeting six weeks ago had put faces on the victims that later haunted me. One elderly man stepped forward to the mike in the main aisle of the auditorium and described how three generations of his family had always be lieved in and supported Texas business. All their funds and investments had been deposited or invested in the largest bank

Integrity 253

ofTexas-the First RepublicBank. Surely this bad spell would

pass if only the stockholders could come together with a plan. Waves and waves of stockholders expressed their hope and their grief at the plight of their bank. Texas pride had taken a serious blow. Only a year ago the bank's shares had been trading above $26 a share after a merger of the First RepublicBank (FRB) and InterFirst Corporation (IFRB). This day their shares traded at $ 1 .25 on the New York Stock Exchange. Many of those folks, from oil tycoons to hourly wage earners, suffered a seri ous financial blow as their stocks plummeted, but they seemed more upset that this once great Texas financial institution would soon be acquired by non-Texans. This seemed to cause even greater anguish than the fact that their failing bank was sinking fast and dragging them down with it. The bravado and naivete of the stockholders could be sum marized by the rallying speech of a young business woman. She was highly polished in her Armani suit, Mikimoto pearls, and Bally shoes. She stood before the mike and displayed con fidence as she prepared to speak. "On market open I intend to purchase 1 50,000 shares." People began to move to the edge of their seats and squirm. "If we all step into the market on Monday and add to our existing shares, we will be able to muscle the price of our shares back up by showing the market that we, the stockholders, still believe in and stand behind our Texas bank!" The squirming stockholders erupted into applause and cheers. The principal of our junk bond firm just shook his head and grinned. Images of Oliver Stone's movie, Wall Street, came to my mind. Michael Douglas won an Academy Award as Best Actor for his role as Gordon Gekko. His speech at the stock holders' meeting was the highlight of his Academy perfonnance. It captured the essence of the ' 80s' takeover frenzy. I 'm sure you remember the one . . .


I am not a destroyer .of corporations. . I am a liberator of them! The point is, ladies and gentlemen, that greed, for lack of a better word, is good. Greed is right. Greed works. Greed clarifies, cuts through, and captures the essence of the evolutionary spirit. Greed in all of its forms . . . greed for life, for money, for love, knowledge, has marked the upward surge of mankind, and greed ... you mark my words . . .will not only save Teldar Paper, but that ether malfunctioning corporation called the U.S.A. Thank you very much. .

Well, no thank you. This meeting was when I first realized I wanted nothing to do with the junk bond industry. (Ironically, one of my farewell presents from my Kodak colleagues was the poster from the movie Wall Street.) Sadly, as in Oliver Stone 's movie, these stockholders were completely unaware that they didn't have a chance. Their scheme would only cause a momentary blip on the screens of equity traders around the world. Like water, markets seek their own level, and the stock would surely sink back to $ 1 .25 in no time. Most were unaware that the stockholders ' meeting was simply an outlet for them to vent their frustrations and anger. Their fate had already been written, and they could not change the course of events that were about to unfold. It was believed that the FDIC had been tipped off that the

bankruptcy was about to be filed prior to the actual court filing,

because it moved with astounding speed in one of the most complex seizures on record, involving the First RepublicBank 's 40 banks with 1 30 banking sites across the Lone Star State. The speed with which it seized assets was deemed incredible for any corporation, let alone the government. The previous year, Congress authorized the FDIC to seize the assets of insol vent banks and manage them for up to two years while a buyer

Integrity 255

was found. Regulators certainly wasted no time exercising their new-found power in this situation.

The New York Times (July

27, 1 988) reported, "Such action, in effect, eliminated the vot ing power of the stockholders and bondholders, giving the regu lators virtual control in finding the buyers." The August 2,

1988 issue of American Banker documented

the events surrounding the seizure.

Immediately after the bank

ruptcy was filed, regulators quickly seized the assets, then

ferred them to a federally chartered bridge bank.

trans-

One week

after this transfer, a new entity was named by the FDIC NCNB Texas National Bank. The FDIC had nationalized the Dallas-based First RepublicBank Corporation which, quoting

American Banker, "Mark[ed] a regulatory evolution that prom ises trouble for investors . . . . . and a spate ofcontroversy for regu lators." The controversy erupted in full with the press release

initial $4 billion American Banker quoted then

announcing the FDIC would give NCNB an

federal assistance.

In addition,

FDIC Chairman William Seidman as saying "the holding com panies are no longer going to be protected." (That meant the golden goose was no longer the property of the creditors.) Seidman was further reported as saying that the regulators were able to create a warehouse for First Republic member banks and devise a management and purchase contract that contained "performance incentives for NCNB ." Interesting, but what were these incentives? Why wasn 't this incentive offered to any of the other bidders? It turned out that NCNB would be dropped down to a 34% tax rate, which created a shelter of almost

$ 1 .5 billion in taxable earnings as calculated by Morgan Stanley in American Banker. Apparentl y

none of the other bidders submitted a tax plan, and this element significantly eased the FDIC 's cash flow burden

compared to alternate plans. In addition to this 0performance incentive who got to keep the credit card holding company? You guessed ...

it, the FDIC.

AER ODYNAMIC TRA DING 256

Significant Time-Line of Events: First RepublicBank Corporation Jan. 1 9, 1 988

FRB reports $656.8 million loss for 1 987.

Mar. 1 7, 19 88

FDIC announced $ 1 billion six-month loan to FRB sub sidiary banks guaranteed by FRB, IFRB and collateral ized by pledge of stock of FRB subsidiary banks. The FDIC assures depositors and creditors they are protected.

Mar. 1 8, 1 988

FDIC Note Agreement executed. $ 1 billion dollars wired to FRB.

Mar. 24, 1 988

Mr. Pastor, Vice Chairman ofFRB, resigns.

Apr. 1 2, 1 988

FRB announces estimated $ 1 .5 billion loss for 1 st Quar ter of 1 988; The Chairman resigns as CEO of FRB and is replaced.

Apr. 29 to May 3 1 , 1 988

29 banks merge . . . a cash shuffle.

May 1 3 , 1 988

FRB defaults. FRB announces suspension of interest payments on FRB and IFRB long term debt.

June 28, 1 988

FRB Annual Stockholders Meeting.

July 1 9, 1 988

FRB announces $758 million 2nd Quarter loss.

July 29, 1 988

40 FRB banks declared insolvent and placed in receiver ship; NCNB Corp. agrees to buy 20% stake in a ' new' Texas bank that will take over FRB 's assets with $4 bil lion in FDIC assistance.

July 30, 1 988

FRB and IFRB file petitions for Chapter 1 1 .

Aug. 3, 1 988

FDIC seizes IFRB credit card bank.

Aug. 1 5 , 1 988

Bankruptcy Court hearing in Dallas with creditors.

Integrity 25 7

NCNB got a tax incentive and a low interest $4 billion loan to take over F irst RepublicBank's non-performing assets that the FDIC didn't want to get stuck with and, in the deal, NCNB upgraded from a regional bank to a national power. In so do ing, it immediately became one ofthe largest banks in the United States with an expanded market in states where it had been previously restricted from entering. The FDIC gets the goose that lays the golden eggs. Everyone's a winner. Or are they? The August 1 5 meeting began with the usual introductions and then copies of the bankruptcy petition listing the top 20 creditors were distributed throughout the room. We had ac quired a copy prior to the meeting. It showed a very serious discrepancy. Our firm was nowhere to be found on the list. We had been omitted, but should have been listed as the second largest Senior FRB creditor. That raised a very interesting ques tion. Was the due diligence for this bankruptcy filing actually prepared earlier, prior to our purchasing activity? That six weeks would have placed the due diligence for bankruptcy filing near the time of the final stockholders meeting. Had the meeting been a carefully rehearsed stage show by the newly appointed executive officers with the inconspicuous FDIC directing? Right away, this whole mess suggested that a much larger plan was at work. Of course, no one else knew the creditor listing had a mas sive omission, and even we didn't suspect what would tran spire next. The meeting grew quieter, as the attorneys began to draw the schematic of First RepublicBank and InterFirst Republic Bank (IFRB) subsidiaries. The intricate flow-chart on the white board showed the cash flow between the FDIC and the two banks. On March 1 8, 1 988, one billion dollars was distributed to FRB in two tranches; $800 million went from the FDIC to the Dallas Bank, and $200 million was wired to the Houston Bank. The loan was promised for six months. As the circuitous c harts were drawn, the room fell silent.

AERODYNAMIC TRADING

258

Well before the six month term concluded, the $200 million

from Houston was transferred to the Dallas Bank. Inexplicably to all observers (outside the FDIC, the Fed, and the bank's newly appointed CEO, at least), the Dallas Bank then wired its $800 million and Houston's $200 million to . . . the Federal Reserve! Then, shortly after FRB wired the billion dollars to the Fed, the FDIC called their loan against the bank. The bank had already repaid the government - the Federal Reserve had it. But the result was technically a default. After the FDIC took over the bank, the Fed wired back the one billion dollars into the IFRB credit card holding company, thereby keeping the Golden Goose on life-support. . . so eventu ally that money 'fluffed' the troubled nest of the FDIC when it retained ownership of the holding company. The Fed could not wire funds directly to the FDIC to bail them out, but this had the same net effect-a Fed bail out of a cash strapped FDIC by injecting $ 1 billion into the FDIC's newly seized credit card company. With this revelation, the meeting broke into total disarray. The largest known players took their shot at the attorneys, rais ing a slew of issues and questions. In time, the room quieted down. It was only then I realized we still had not clarified who were the top 20 bondholders. Since we had been omitted, there might be others. So taking a deep breath, I raised my hand. When acknowledged, I explained to the entire room that our firm had been omitted from the creditors' list, and we would have been the second largest FRB creditor of the Senior 1 1 %% Notes of 1 989. I suggested we go through the room and estab lish a more accurate accounting of who owns what. The sug gestion was met with nods of approval from around the room.

An elaborate inventory roll call began. It appeared our firm was the only one that had been entirely omitted. Then from the far back comer of the room, a slender man, not more than 5' 3", stood up. He spoke with the utmost cour-

Integrity 259

Flow of Funds From the FDIC's $1 Billion Subordinated Loan to FRB

FDIC

. . . . . .IC. . . . . . .... . . . . D F -

$ 1 Billion

'

.. . ��id.� �an1c···• I I

-

-

-

FRB

-

.·. . ". .. ·.· ·. . . . · ·: .. . . Ji<>lctitl.g Q(lfi.lpapy ·. . •

.

$ 1 Billion

Federal

Reserve Bank of

Dallas

$1 Billion

$800

MM

$200

MM

FRB

FRB

Dallas

Houston

$200

MM

AERODYNAMIC TRADING

260

tesy and with the soft cadence of a Japanese accent. He gave his name and asked if he might be permitted to ask a question? In his soft, slow, heavily accented voice the man asked, "Am I correct in understanding that one billion dollars was wired by the FDIC to the bank, then wired on to the Federal Reserve in Dallas? As a result, when the FDIC's one billion dollar 'loan' was called against the bank, they defaulted?" Not a sound could be heard as all eyes had turned back to the podium. "At this time, these appear to be the facts. Yes." The man in the back corner began to speak once again. "I was sent to this meeting on behalf of several interested parties in Japan. Collectively we hold 111111 bonds. I will return to Japan and report today's findings." The Japanese holdings were so staggering that the room went into shock. While I had not understood the wider ramifica tions, I clearly understood that Japan was the nwnber one credi tor by a country mile. This federally-chartered, federally-in sured Texas bank was effectively owned by Japan. (Japan was also the prime lender to many S&L companies across the U.S.) Turning to David, I asked him, "What does this mean?" It means, he said, that the Bank of Tokyo and a host of other Japanese banks have just been stung by the Fed and FDIC. Ja pan will start pulling their money out of solvent American S&Ls as soon as possible. Ifthe FRB default scared the Japanese into withdrawing their support of the S&Ls, the industry would be threatened. What was believed to have been a domestic bank default had sud denly expanded into an international crisis. David's next words were chilling, ... the fuse has been lit for an S&L implosion. Within three months this country will be in the midst of an S&L collapse. The crisis we have seen so far is only the tip of the icebera in comparison to what's ahead.

Integrity 26 1

It made no difference that later due diligence uncovered ad ditional cash flows that would have helped the bank along with other less damaging facts. The fuse was lit and could not be smothered out. David's time estimate wasn't quite right. It was less than a month later that The Wall Street Journal re ported the S&L crisis had expanded to epidemic proportions. Integrity is our inner core. It is a source of power that leads to extraordinary performance. Each of us has a different defi nition of integrity as defined by our Basic Self and Higher Self. When you wake up one morning and are uncomfortable about what that person in the mirror is about to do on any given day, it is time to move on. The story I have just related raised ques tions for me about what value the entire junk bond industry had to offer. I had spent my entire working career with Kodak build ing other people's businesses so as to grow ours. It was a healthy win/win relationship. I valued what we did and what we were about so my goals and milestones were a joy to reach for and attain. The industry I was first exposed to when I entered Wall Street revolved around a world of winning at the expense of others. This caused my motivation to fade and the inner spark and drive to be a part of the Wall Street environment to die. I had little interest for digging in to uncover the fatal clause, or covenant, within a corporation's bond indenture that would become their undoing or demise. The whole element of cramming-down on others for a financial win created an inner conflict I could not resolve. The underlying factors contributing to each new pend ing bankruptcy had to be told and retold throughout the day in order to make a junk bond trade. My inner selves could not deal with these endless negative stories in order to find the next vulture that wanted a piece of the kill. It was distasteful . In fact, everything about that industry was a source of inner con flict and contributed to a loss of my inner balance. No one can be successful if his efforts arc not fully compatible with his


sense of integrity. When I began to trade futures based on tech

nical analysis, I discovered that I began to direct my focus again to asserting my skills. As a result, I began to learn, improve, and apply my growing skills with confidence. The markets are so large, I've since discovered that you can tell the world what trades you are making and if you win, so do the traders shadowing you. I finally achieved a balance that has re-established the healthy win/win relationship I had once known at Kodak. Each trader needs to find his own market niche that nurtures his own inner balance. Those that fail to do so may make big names for themselves for a while, but a fast unscru pulous rise can just as easily be followed by an equally volatile free-fall. I think most of us would prefer to play the trading game forever, and longevity requires inner balance to survive.

263

Slumps There are two kinds of swimmers;

those who have already experienced a slump, and those who will.

The only difference is time.

-Coach John Skiian

Like people, slwnps come in all shapes and sizes; short ones, long ones, little ones, famous record breaking ones, and ones that come and go, never having been noticed. The only sure bet is that at some point in time we are all going to experience a period when all the skills we have worked so hard to develop and fine tune just seem to abandon us. The world recently wit nessed one of the most heartbreaking slumps in Olympic his tory finally end. Together we sighed in relief as Dan Jansen won his Olympic Gold Medal in speed skating in 1 994. Al though he held every World Record and had dominated the sport for years, it was not until the last race of his career that he won the medal that had eluded him in three Olympic Games. During a slump, we try to force our skills back and create added pressure, tension, and anxiety. Our very efforts to attempt to dig out of our slump can actually make the slump worse and last longer. Therefore, the key to breaking a slump is not to become rigid and fight the down cycle, but relax, just go with it. I have a trading rule, passed on to me by several traders, that helps to break the chain reaction associated with a slum p be fore it has time to set in and establish a major downtrend. After

three intraday trading losses, I • m out of the market for the rest of the day. When I have three day ttades wrong in a row, I'm nut fnr

A

minimum n f thrfl!fll ti.av•

Th,. M.aann thiM nil� iM

qn

\

AERODYNAMIC TRADING

264

valuable is that it takes three days to change any attitude or state of mind. Assertion may gradually melt into an attitude of ag gression that makes us become rigid and fixated on our own point of view about the market. Take three days off. Don't even look at the screen or read a newspaper. Then come back and take a fresh look when you have refound your center of balance and reestablished an inner calm that allows you to once again flow with the markets.

// Short horizon traders frequently refer to the three period rule:

if after you have established a position, it must start to go in your favor by the end of the third period, or you close the posi

tion. In other words, if your primary time horizon to trade is hourly, then you have three hours to be proven right or the time rule will force you out. This rule has saved me on several occa sions. However, if you trade from 2-minute charts, you'll need to adjust this rule to a�[i.Q.
WQie��!!S�-=./(

Slumps require a period of healing, a period of time to distance ourselves from the setbacks and to allow the frustration to fade. Then through visualization, we can call upon the skills we practiced to regain our center of balance. Some people vi sualize their mistakes and then go about setting small rituals to let go of them. Some see the slump as a physical obj ect. Pic ture that object on the face of a tennis ball and go smash tennis balls for a few hours. You 'll be too tired to be frustrated. The next step is to reinforce your confidence and take a period of time to go back and test your indicators to provide reassurance that the methodology was correct, but the odds simply swung over to the house 's favor for a while. It can be extremely help ful to discuss trading anxieties with a trading mentor. Mentors are invaluable, especially a friend who has similar methodolo gies. The next step is to visualize in very explicit detail the sensations and events that occurred when your trading was flow ing easily with the markets. That is why we practiced visualiz ing these periods when we were successful, for now we need to reprogram ourselves by role playing our way out of the slump.

Slumps 265

Not only is it essential to reprogram ourselves through visu alization, but we also need to closely monitor our patterns of speech as well. Are you telling yourself how stupid you were, adding insults to injury? If so, stop. Get out a piece of paper and write a new phrase that is less damaging. Remember the discussions about how to reprogram ourselves? Now is the time. (Remember Edison did not fail, he succeeded in finding 5,000 ways not to make a light bulb.) Rewriting a negative statement into a positive one is a method known as developing affirmations. Here are a few examples that may be used for breaking a slump. "Less effort is more assertive." "I did not fail; I just learned how to. . . " "When I give up defending my market view, I will then be able to yield and blend with the rhythms ofthe mar ket." "I feel relaxed, loose, and flowing with all elements in my life.'' Some slump periods will be caused when our Basic Selfhas been ignored, and it has a temper-tantrum to get our attention. Our efforts are sabotaged, and we have no chance of winning without our Basic Self agreeing to the game plan. So think for a moment. When did you last take some time off to just go and have fun? Wh�n_yJiU�J-�g 1-be.. t:U�.9.t.t.W.�y� _P_tj��-��J. �_yJJ�t 'Y�in& u��HY.Q��U!_�-�h�n t��. .!ll��t !��:f!l.al�_b�gi!!_ �o _s�ide, shift, a,i� ��p slightly offtrack in very short intraday price patterns. The next stage is frequently accompanied by muscle tension and pain in my neck. When I am unable to sec a new pattern emerging within the price data, I try to shoehorn mistracking short horizon patterns into the larger Elliott Wave pattern in a longer time frame. Eventually if the early warning signs are not heeded, the market simp ly runs me over. The time I need to


study a price pattern is inversely proportional to my confidence in the direction of the market. This period of inner uncertainty and confusion is usually controlled by intuition. When the market just doesn't feel right. .. that's a time to step to the side. For short horizon traders, just go for a brief walk. Take a few deep breaths and concentrate more on relieving the muscle tight ness in your neck and chest, rather than contemplating new ways to assert your opinion upon the markets. If you want to be aggressive towards the markets, beware, you already know who will win that battle. . Deeper, more lengthy slumps require additional time to ex plore the root cause. The very first step in breaking the pattern is to STOP TRADING! You need to take time off. That means get away from the markets. Don't try to track any market's progress through print, electronic media, or office contacts. Just go away for a while so you can change your current daily pat terns. Take time for yourself to heal and relax. Then before re entry, consider rereading and practicing the exercises in this book. The method you need to identify why you are off center in your trading is contained within these pages, but it will re quire adopting the beginner's mindset once again. Return back to being the student and not the expert. There is a reason that coaches use these exercises in the order you encountered them in this book. They work. Look over the self-evaluation scores that you gave yourself in "Aspects of a Successful, Professional Trader: A Self-Test." The items that you recognized as being below a grade of 5 are likely a source of the current slump you are experiencing. Do something now about changing your lifestyle to beef up the weaknesses revealed in that self-test, before you reach the next step and chapter, "Fatigue, Denial, and Injury or Illness." Fail ure to accept change at the "slump" stage leads to a quick slide downhill towards burnout.

267

Fatigue, Denial, Inj ury/Illness, and Burnout Pain is the most heeded of doctors: to goodness and wisdom we only make promises: we obey pain.

-Marcel Proust

Denial occurs when our Conscious Self tunes out the needs and desires of our Basic Self. This results in various feelings of discomfort. Though we believe we've "gotten past that," what ever "that" might have been, we still may not be able to freely express our emotions or acknowledge our feelings about "that." Denial encompasses both suppression and repression. Any thing less than full recognition and expression of emotions is denial. However, once we find a way to break through a denial barrier, our Basic Self rewards us with a tremendous release of energy that accompanies a release of tension, anxiety, and even physical pain. Our skill for denial has been finely tuned since childhood when we learned to avoid blame or punishment by saying, "I dido 't do it." Blame, along with the responsibility, was de flected towards a sibling or neighbor. As we grew older we learned to avoid blame by finding other reasons and causes to deflect responsibility away from ourselves. By deflecting the responsibility, we found ways to "get past that," but we sup press our feelings and eventually lose touch with them, which in tum further contributes to our stubborn beliefs that wc arc now "past that."


In cases of deeper denial, we choose to selectively forget incidents and feelings. We suppress these memories in an at tempt to protect ourselves from painful setbacks or experiences. Sweeping these under the carpet only serves to build more densely packed inner obstructions and offers no permanent so lution. Remember: our Conscious Self thinks, while our Basic Self feels. As prior pages discussed in much detail, we cannot trade on technique alone; intuition supersedes technique. By suppressing our feelings, we actually disconnect ourselves from our Basic Self and thereby lose the support and commitment from our Basic Self. This contributes to increased anxieties, and in extreme situations, decision paralysis. We may freeze before our computer screens as we become captive in our de clining self-confidence and weakening Ki. We become dis connected from our guiding inner voice, our intuition, and cre ate inner turmoil by losing our inner balance. The way out of such anxiety is to find a way to reconnect our Conscious Self with our Basic Self. One way is to ask a ques tion that helps to peel away some of the outer barriers. Try to fill in the blank. "Ifl knew what I was feeling now, I'd say I felt . Knowing that our negative emotions fall primarily within one of three categories, we can also use this knowledge to help us as well. "Is the feeling I am experiencing closer to fear, anger, or sorrow?" Follow any new awareness with com passion and forgiveness. Recognize that we do the best we can with what we have to work with on any given day. Then, as we clear our obstructions and balance our body, mind, and emo tions, our "best" gets better all the time. Another problem with denial is that we relinquish account ability for our own actions if we always deflect cause or blame for our trading mistakes outwards. We no longer have the Beginner's Mindset and fail to learn and grow from setbacks. The shift to an outward focus transforms assertion into aggres sion. We in essence set ourselves up for defeat. ___ "

Fatigue, Denial, Injury/Illness, and Burnout 269

Fatigue is a serious factor for traders. For example, you've been trying to catch the start of a major decline for a week, only to find the market chops you up within a triangle pattern. The battle to find the high resumes, and when the market finally breaks, it only leads to another choppy decline, and you 're left scrambling to trade anything the market will hand .you within a complex consolidation. The cycle repeats itself for several weeks, and soon weeks stretch into months. No real trend, no clearly defined impulsive price structures reveal themselves. Just sideways chop. Eventually when the market finally breaks down with conviction you are exhausted from the long battle to establish gains within a difficult and lengthy consolidation. Battle weary, fatigue begins to slow your reaction time and leads to calculation errors that lead to opportunity costs from having missed portions of the market's move. Frustration compounds the fatigue factor. I 'm sure this all sounds familiar to anyone who traded the S&P in 1 992 where triangles and choppy price action lasted the entire year. Such conditions take their toll on our mental and physical well-being. Fatigue will always be a factor in trading. It is important to disconnect from fatigue; in other words, give this demon a face or name. As a swimmer I was taught to make the exhaustion some kind of entity so you can let go of it. Early in the book I demonstrated displacing discomfort when I broke my finger in a swim meet. The same technique applies to trading fatigue. "Fatigue - it's you again. Maybe you want to hang around, but I have a job to do here. You'll have to wait until I finish." Laugh about a funny moment, find a way to relax and divert your attention, and avoid developing concern over your fatigue. You may be tired, but you can finish the trading session strong. Whatever method you use, know that to push through fatigue you must not resist but yield by deflecting the discomfort. The moment you become rigid with the markets through fat igue will be the time you are positioned to take a serious hit. The


market will prevail. The reason is that your anxiety and tension will greatly increase when you try to resist your fatigue, caus ing even greater fatigue. Fatigue is a warning that we are not paying enough attention to the needs of our Basic Self. It is a warning we need different food and more rest. Clearly while trading we cannot take more time to rest, but fighting or becoming angry and frustrated will only distract us, or make us lose our confidence, enthusiasm, and courage. Since we know our bodies respond physiologi cally to the images in our minds, we can help to dissipate the anxiety and tension brought on through fatigue by visualizing ourselves being relaxed, fluid, calm, and flowing with the mar kets. The visualization exercises are by far the most effective technique for dealing with acute fatigue, but they are only a temporary bandage to hold you together until you can do some thing about the earlier warnings. These warnings must be heeded and changes made, if not now, soon, before descending further towards burnout. When ignored, fatigue contributes to illness and injuries. That is the next progression for our Basic Self to cry out, "Attention, something is not right here ! " Fatigue makes us careless and makes us prone to make a mistake. I love tennis but have bro ken the same ankle five times playing the game. I always used the sport of tennis as my stress release; however, I did nothing to relieve fatigue. Each incident where injury occurred was the direct result of being overtired, yet still believing that all I had to do was push through the weakness. Instead of strengthening over time, my body broke down. After several fractures, you learn a lot about the different phases for healing. Injured athletes and traders go through the same five stages of healing. The first stage is denial. We tell ourselves, "No, not me, there's no problem. It's not that seri ous." Then when reality hits, we are unable to perform opti mally, or not at all. The next stage is anger. "Why me, why

Fatigue, Denial, Injury/Illness, and Burnout 27 1

now? !" This seems to be accompanied by panic, which only serves to intensify the pain of the injury or discomfort of an illness. As the pain deepens, we enter a phase of bargaining. We make outlandish promises that "if the pain subsides and I again, ever." I frequently promised recover, I '11 never do to take more time off, but never did and therefore experienced this progression numerous times. Eventually the promises and begging prove futile, depression sets in, and we begin to feel sorry for ourselves. Having passed through the first four stages of healing, we finally arrive at acceptance. "I'm injured or ill, but I could use the rest before I get on with my life." Only when we reach acceptance can we truly begin to heal. How ever, the more stubborn our character, the more likely it will be that we have to oscillate back and forth for a while within the first four stages before we break free into acceptance. When we are ill or injured it is extremely important to seek the advice of a professional we trust and respect. Even if it is only reassurance a doctor gives us, this helps to reduce the stress associated with the questions we face during the panic stage of our healing. We fill ourselves with stress by asking, "How will I get by until I'm healed? How long will it take? What ifthis is more serious?" We can help our recovery by gathering as much information about our situation as possible. The techniques of visualization and meditation have medi cally been proven to speed up the recovery process. Now is a very important time to practice these techniques described ear lier. Times of injury and illness are perfect times to evaluate your situation. Try to understand what your pain is trying to tel I you. Should the warnings of repetitive illness or injwies, fatigue. and stress be denied and unheeded, the next phase is skid row - burnout. It is a rude awakening to lie in a hospital bed extremely ill, or work through the shattering fragments of bankruptcy, or men-


tally heal from an emotional trauma or loss. It is a struggle to

find a new foundation on which to rebuild. Burnout requires

time to heal.

A personal evaluation and acceptance that changes

must be made are finally accepted. When you experience hit ting bottom, the denial and false self-delusions fade. We be come aware of our weaknesses followed by a phase of self-pity and depression. This is not the time to beat ourselves up. We

need compassion and understanding, but most important of all,

distance through time. The exercises offered earlier in this book

will help you to uncover what needs to be changed, show you how to go about making these changes, and then provide you the means to find your way back to center balance. While the experience is painful, it will lead to a higher aware ness, and the superficial will no longer be able to pull you from your center of balance. You will soon discover the richness of living in the present by letting go ofthe past. You will no longer miss out on what today offers for worrying about what could have been or what might be in the future. We crucify ourselves between two thieves: regret for yesterday and fear of tomorrow.

-Fulton Oursler Painful as it is, burnout can be a doorway to freedom. It's the same door I had to pass through, and I can only offer com passion, encouragement, and through this book, the means to reach the other side. The exercises work. Do them.

PART V The Olympian 's Mindset App lied to Trading: A Real-Time Demonstration


Part V: The Olympian�s lvf.indset Applied 275

A rich man, fond of felines, asked a famous Zen

ink painter to draw him a cat. The master agreed and asked the man to come back in three months.

When

the man returned, he was put off, again and again, until a year had passed. FinaHy, at the man's request, the master drew out a brush, and, with grace and ease, in a single fluid motion, drew a picture of a cat - the most marvelous image the man had ever seen. He was astonished; then he grew angry. "That drawing took you only thirty seconds! Why did you make me wait a year?" he demanded. Without a word, the master opened up a cabinet, and out fell thousands of drawings - of cats.

-A ZEN

Story

Swimmers will stroke through thousands of miles of water to perfect their stroke to break 30 seconds for a 50 meter sprint. Top Gun pilots will spend countless "flight" hours confined in computerized simulators to prepare for those few real missions they may experience in their entire lives. Anyone, regardless of how often he is called upon to excel within a high risk environ ment, will have been conditioned and fine-tuned with count less hours to achieve his desired level of excellence. Spectators misinterpret proficiency as a skill that comes eas ily for the achiever. This illusion results from endless hours of practice that streamlined and polished away the rough edges of inefficient technique. It is the work, the practice, the ups and

downs that lead to the same apex. our goal 1.... .... 1 ... ... ... .. .... .... .... .... ........ ...... . .. .. . .... ,.. L ... : ,.. . . ....

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we can extend and push ourselves into a new level of achieve ment. Complete and total balance is rare, but with practice, we can experience this extraordinary inner harmony more often. In trading we strive to achieve a oneness with the markets so our gut feel and the market's moves are in unison. What follows is a sample of what can be achieved when we are in sync with the market. We have discussed the skills and mindset required to excel in a high stakes environment, now is the time to stop the talk and start to do. The time has come to apply the skills offered throughout this book to our trading. Regardless of the time horizon or market you prefer to trade or invest, weekly, daily, hourly, or even shorter, the principles are the same. The only difference is that the shorter your trad ing horizon, the faster will be your decision criteria and the greater will be the demand on your intuitive timing. The short est, and perhaps the most demanding time frame to trade is from one and two minute charts. The following S&P charts are one and two minute bar charts. These charts have not incorporated "hindsight analysis." The charts and accompanying trade decisions are as they occurred April 20, 1 995 . The time stamps record when these signals were transmitted to hundreds of institutional traders around the globe simultaneously by Bloomberg, Knight-Ridder, Reuters, Dow Jones/Telerate, and other independent quote vendor ser vices. No changes have been made to the original buy/sell sig nals that follow. In addition, the trades were real. Both very short and longer horizon traders are striving to achieve the same goal - more frequent profitable trading ses sions. To achieve this goal we have to progress towards our daily milestones with continued work, patience with our own development, and a whole lot of persistence. However, once you've experienced your first trading session, in your market and time horizon like the one that follows, you'll need no fur ther convincing that the principles offered throughout this book

Part V: The Olympian"'s lvfindset Applied 277

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. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50500

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9:32am DJIA last: 42 14 June S&P last: 508.20

(SHORT) Selling I 00% at current levels with a 508.90 stop. A five wave pattern up from 503 . 1 0 is now complete.

Observations: Chart [ 1 ] shows a strong market with an open ing gap that led to an early fast market condition. Selling in front of a fast market rally might seem reckless or require tre mendous courage. In actual fact, this market opening applies to the discussion offered in the chapter entitled "Comage." This is an example of calculated risk-taking. The fear and anxiety that accompanied the risk was neutralized when preliminary analysis identified the precise location of a formidable resis tance zone just above the market. The market rallies right to the underside of this invisible barrier, offering a selling oppor tunity. If the market were to continue to rally through the resis tance area, I will know immediately that the short position is wrong. As a result, the capital risk is viewed acceptable.


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9 : 30

Thurs. 9 : 54am DJIA last: 42 1 9 June S&P last: 507 .25

(FLAT) Paying current levels for 1 00%. A seven wave decline to the .6 1 8 retracement of the advance from the 506.55 low... expect further gains.

Observations: In chart [2], the market declines but fails to fill the opening gap, which may indicate that the decline is com plete. In addition, the retracement was a 6 1 .8% retracement of the previous rally, which past experience has proven is a very high probable pivot area for the market to turn sharply. A de fensive strategy is to unwind the short position to realize an immediate profit. Executing this order applies the exercise "Trading from the Left Side of Your 'But"' on page 1 58 in the chapter "Intuition." Stay on the left side of this "but" state ment: The market is stalling at the .6 1 8 retracement jeop ardizing my current gains, but ifl hold on to the posi tion, the market might break down and increase my profits.

Part V: The Olympian's lvf.indset Applied 27 9

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'1 I H U l E BAR

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I O :O l am DJIA last: 42 1 8 June S&P last: 507.60

(SHORT) Repositioning again... selling I OOo/o with a 508.60 stop. Re viewing cash S&P and the DJIA, the decline is not over as a larger five wave advance has just ended in the DJIA.

Observations: The price data that followed after the 9: 54am update was identified as a specific Elliott Wave pattern that warned the rally is only a small correction or bounce up from the .6 1 8 support level. (The pattern is called an Expanded Flat.) This pattern leads to a resumption of the prior trend. The mar ket is immediately sold. This trade is simply applying tech nique with confidence based on prior successes.

AERODYNAMIC TRADING 280 9 = �M

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Thurs. 1 0 : 1 0am DJIA last: 42 1 3 June S&P last: 506.50

(SHORT) Minimum target for a zigzag decline is 505.85.

Observations: The number four in this chart is circled be cause no trade is initiated, only a comment is transmitted to traders around the world. All time bars with black arrows show where and when a market order is entered. In the 1 0: I Oam update above, supporting technical indicators did not warn of a bottom, so further losses are probable. This is no time to doubt your indicators. Confidence comes from having back-tested similar indicator positions to increase the odds for success. If there is a pause to question the indicator's accuracy, then more homework is indicated to remove the obstacle -fear offail ure.

Part V: The Olympian�s lvf.indset Applied 28 1 9 : 5g

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Thurs. 1 0 :20am DJIA last: 42 1 0 June S&P last: 505 .80

(FLAT) Paying current levels for I 00%. The DJIA has five waves down the decline isn't over... but a bounce should develop from this target level.

Observations: Other stock market indices such as the OEX and DilA have already declined to their price targets and formed bottoms. The high correlation between these indices warns that the S&P futures market is lagging. A rally will soon develop. While the position is unwound to protect the profit, the posi tion is not reversed at these levels as the S&P price data warns that the current lows will be tested again. A range is defined.

AERODYNAMIC TRADING 282 9 : "IA

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Thurs. 10:32am DJIA last: 4205 June S&P last: 505.45

(LONG) Paying current levels for 50% with a 505 . 1 0 stop. Retracement levels ...(505.75- .90), (506.25), 506.45, 506.80, (507.05-. 1 5) .

Observations: A new market low does develop and a short position is established. When the market traces out a move you had visualized, the follow-through to establish a position be comes easy. However, I am not confident that a major bottom is in place so a smaller position is established that exposes less capital.

Part V: The Olympian 's Nfindset Applied 283

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Thurs. I 0:45am DJIA last: 4206 June S&P last: 506.20

(REVERSE/SHORT) Selling 1 50% at current levels to get out of the cur rent long - reposition short. A 506.80 stop. The very small decline from 505. 70 to the last low at 505. 1 5 is a wave b decline within a flat pattern. The advance is therefore wave c up...

Observations: As the rally unfolds, the small decline that follows price bar [6] to a new low is suddenly given a new interpretation. The new interpretation has to be quickly sub stantiated and requires immediate action. Then the 50% long position is unwound and an additional 1 00% is sold to reverse. The market has advanced to the 506.25 resistance level identi fied in update [6] . The 506.80 stop is incorrectly placed. The resistance levels over the 506.25 area are 506.45 and 506.80, as defined in [6]. The stop is placed over the next resistance level, but entered directly at the 506.80 zone. It should have been corrected if the error had been detected. Fortunately, this small slip did not become a factor.


To have the mental freedom to completely reverse your posi

tion and opinion requires a centered balance without bias. The

chapter "Centering" described how being centered contributes

you off-center to cause a distraction. In addition, if we become

to inner control and how new events or information cannot pull

too attached to our viewpoint about the market 's direction, the small piece of new information might easily have been missed. It shows how Ego can limit our ability to process information. ,- : 50

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. . . . . .

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.

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.

· · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · ·

. . . . . . . . . . . . . . . . : . . . .

. . . . . . . . .

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. .

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11

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50500

.

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)06 1 0

506158

50620

506 1 5

506 1 0

9- 1 5 = 00

(8) [S&P)

50605

20- 9 : 30

506108

50620

506 1 5

50625

50620

506 1 5

20- 9 : 00

Thurs. 1 0 :50am DJIA last: 4209 June S&P last: 505 .70

(SHORl) Potential targets for further weakness . . 505. 1 0, 504.50, 503.45 .. .

.

Cancel the 506.80 stop and replace at breakeven . . . 506. 1 5 .

calculated. Caution is needed that a break in concentration does

Observations: The stop is lowered and new obj ectives are

not occur when the market starts to move in your favor. The

favorable move does offer a chance to take three deep breaths as described in "Conscious Breathing."

Part V: The Olympian's Nf.indset Applied 285 RXM5

· · · · · · · · · · · · · · · · · · · · · · · · · · · · · · ·

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00

Thurs. 1 0:55am DJIA last: 4207 June S&P last: 505.90

(REVERSE/LONG) Paying current levels for 200o/o...reversing.... Cancel the stop, a new 505.30 stop. Hourly technical indicators are EXTREMELY oversold... and this pullback from the 506.25 high is stalling at the .6 1 8 retracement of the advance from the low. ( 1 0:56 addition) New targets for a rally are... 506.25, 506.65, 507.35.

Observations: The brief pause in the market allows an op portunity to check the longer time horizon charts and hourly indicators to maintain perspective. If focus and concentration had been eased in [8], this new information would not have been attained. This is actually a vulnerable point for a trader. The market has proven prior assumptions and trades to be correct. The risk is a break in concentration at this moment or relaxing with a sense of false security that contributes to an error. Ego begins to step forward and overconfidence could become detrimental.


Another risk is slipping away from the present moment to start thinking about the odds of being right again. As soon as we question ourselves if we can continue the string of successes, we break the trend. The question and distraction can be filtered by using the technique described on page 1 1 1 in "Distortions of Reality and Ability." 12:34

RXl1S

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. . . • . . . . . . . . . . . . . . . . . .

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· · · · · · · · · · · · ·

· · · · · · ·

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[10) (S&P]

•

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. 11t 1

. . .. . . . .. . . . :

2 M mu I E BAR

. . .. .

1'11 '1 . . . .

120- 9 : 30

'50800 50700

.. . .. ... .. . .. ...... i' I .

.

. . . . . . .. .

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120-10 : 00

· · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · ·

Thurs. 1 1 :05am DJIA last: 4209 June S&P last: 506.45

(FLAT) Potential zigzag up to the 506.50 high . . . selling 1 00% at current levels. Cancel the stop.

Observations: While the position is covered with a profit at these price levels, it should have been reversed. Stamina is beginning to become an issue. The exercise described on page 1 36 is useful in increasing our concentration. When the first small error is made it is acknowledged. When it happens again I know that's the time to take a short break. Now where did that paper airplane go?

Part V: The Olympian's Nlindset Applied 287

i2:34

·

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•

(ll) [S&P] Thurs.

20- 9 : 30

120-10:00

:50:500

l 1 :35am DJIA last: 42 1 5 June S&P last: 506.00

(LONG) Paying current levels for I 00% with a 505.55 stop. The target is 507.3 5 .

Observations: A new position is established fourteen min utes later. Note that the entry is a little late. The rhythm is still there but actions derived from intuition are beginning to slow down. Fatigue has become a factor.


RXl15

. .. . . . . . ,11 . . .

. .. . . . .

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....

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. . . . . . . . 50800

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•

(12) [S&P]

20- 9 : 30

120- 1 0 : 00

Thurs. 1 1 :40am DJIA last: 42 1 6 June S&P last 506.20

(FLAT) The target is wrong . . . a bearish triangle is developing and the ad vance from 505.50 is wave c up. Selling 1 00°/o.

Observations: Finally, self-doubt from fatigue causes ajudg ment error. The Basic Self might well have been contributing to this decision to step out of the market by going flat. Tri angles allow a break in the very short horizon so the trickster mind is likely wishing for a triangle. Technically the internal structure from point 1 0 to the next low is a five wave pattern. This means that a triangle pattern will never develop. The as sumption is wrong.

Part V: The Olympian's A1indset Aeplied 289 R>
. . ....... ....... J11 · ··· .. .

. . . . .

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2

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120-10:00

(13) (S&P) Thurs. 1 1 :46am DJIA last: 42 1 8 June S&P last: 506. 70 (FLAT) OK not a triangle ... also means the 507 .35 target is likely correct. . .

Observations: As the market breaks above the high estab lished in point [ 1 0], the triangle pattern is negated and the error is realized. Staying centered is essential. Missing one point in the tennis match is not a source of concern. I am still ahead. Don't let the error become a distraction.

AERODYNAMIC TRADING 290 !.2 :34

AXMS

1

..... .. . . . . . . . . .. . .. . . 1 1 ' . 1 '1 1 1 : 1 ' 11 1 1 ·

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· ·

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. -�•600

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· · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · ·

•

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. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . · . . · ·

:

· · · · · · · · · · · · · ·

50500

Thurs. 1 2:37pm DJIA last: 42 1 6 June S&P last: 506.80

(FLAT} The current pullback is viewed as another fourth wave down, im plying another advance in the S&P to 507 .50 should then lead to a deeper correction.

Observations: Chart [ 1 4] simply shows a re-evaluation is occurring. It is a chance to regroup and refocus for the next round. This is a similar situation to when the blackjack dealer has to shuflle the deck to create a new shoe.

Part V: The Olympian�s lvf.indset Applied 29 1

_lE:34 ·

1

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•

.

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· ·

(IS] [S&P] Thurs.

· · ·

. 120-1 0 :00

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15

· · · · · · · · ·

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120- 9 : 30

·

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• · • • • • • • • • • • • • • · • • • · • ·

.•

RXl15 2 MJllVIE BAR

· · · · · · · ·

�0600

50:500

1 2 : 5 8pm DJIA last: 4223 June S&P last: 507 . 1 0

(SHORT) Selling 1 00% at current levels with a 508. 70 stop. Extremely close ...just one small fifth needed in the DJIA to end the advance from 4 1 57 . . . . S&P could be done.

Observations: A new short position is established with the market's next pivot. The commentary shows attention to detail has returned. The brief break helps to alleviate the fatigue fac tor by relaxing and staying out ofthe market since update [ 12].


AXl1S

12: 34

. . . . . . . . . . ,,1. . ..... ... .

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. . . .

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(16) [S&P)

50600

.

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•

.

50500

120- 1 2 : 00

120- 1 0 : 00

Thurs. I :28pm DJIA last: 4222 June S&P last: 507 .00

.

(SHORn Paying current levels for 50% .. staying 50% short ... and leaving the 508. 70 stop for 1 00%. DJIA and SPM both suggest fourth wave tri angles from the 4227 and the 507 .65 high. The triangle only projects a fifth wave to 508.00.

Observations: The battle has been renewed with a second wind of energy.

Part V: The Olympian's lv'I.indset ApPlied 293 1 4 : 07

· · · · · · • · · · · • · · · · • · · · · · · · · · · · · · · · · · · · · . .

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�0780 •

50775 50770 120-1 2 : 00

(17] [S&P] Thurs.

50775

120-14:00

1 :55pm DJIA last: 4227 June S&P last: 507 .30

(SHORT) That's the thrust up in the DJIA and cash S&P. . .futures are very slow to move . . . selling 50% at current levels. (It could be that futures are still within the triangle pattern) ... The stop remains at 508. 70 for 1 00%.


.

. . . . . • • . . • . • . . . . . . . . . . .

·11 :.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

· · · · · · ·

. . .

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50750

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.

. . . . . . . .

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. . . . . . .

. . . . . . . . .

50780

. . . . . . . .

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. . . . . . . . .

50775 50770 120-12:00 .

..

. . . . . . . . .

.

50775

. . . . . .

..

. . . . . . . . . . .

..

. . . . . . . . .

120- 13:00

. . . . . . . . . .

1.8.

506�0

120-14: 00

- - - - - - - - - - - - - - - - - - - · - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

•

(18] [S&P]

Thurs. 2: 38pm DJIA last: 4227 June S&P last: 506.80

(REVERSE/LONG) Paying current levels for 200o/o with a 506.25 stop . . . cancel the 508.70 stop. Wave e down developing now...more to fol low in the next update . . .

Observations: While only the price charts are reproduced in this chapter, the methods supporting Elliott Wave analysis are RSI, custom momentum indicators, and Gann analysis. The method or technique in use is not the issue, but that the tools offer an instinctive message for the trader.

Part V: The Olympian"s �indset Applied

. . . . . . . . . . . . . . . . . .. . . . . . .. . . . . . . . . . . . . .. . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . .

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· · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · ·· · · · · · · · · · · · · · · · -

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50770 5077� 20- 1 2 : 00

5 5077

-1 3:00

0700

· -

0-1 4 : 0()

(19] (S&P) Thurs. 2 :45pm DilA last: 4226 June S&P last: 506.70 (LONG) A contracting triangle pattern from the 508.30 high ... wave e down developing.. .largest open interest on record going into expiration . . .excess puts. Favors a +2 .30 S&P pop on open tomorrow...hence reversed.


J

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1 4 :97

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. .

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50800 . .

. . . ... . ·1 . . ..... . ....... :. ........ ·:. .... .... .:· ..... ··:. · . . �.,.. 7 . . ·:·. ........ .:· ....... .: ......... .: · ....... .: f ·. .·. . . . . · , . r , 11 ll 111i1 : : · 11!1 . : 1:1 jl1 : : : : I /1 l ll1 1Jl( 1 . ...... ·: .....l 1llJ111'l�11'.1 '.1..... l l 1' m1 1 ... . ........... . . ... . . :1 1 1 ................ · 1 111 !, .l il"· I . . . . . : 1 11 . 1 1 jj 1 . :: . llih . . . : 111 ·. . ·. ·. .· ·. ·. . l tJiii. .· I t.1 ·I t : .... . . ········ <··· . . . ..-: . ...... : ...... ···: . . .... ··· : ........ ·:' ........:·· . . .... ' '1 111 1 . :· . . .... ·:1.8 . : 11 ...... ......... . .

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50770

20- 1 2 : 00

[20) [S&P]

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20- 1 3 : 00

20- 1 4 = 00

Thurs. 2 : 5 8pm DJIA last: 423 1 June S&P last: 507.25

(LONG) Targets ... 508.05, most likely 509.00 ... then expecting a move back to 505 . 1 5 .

Part V: The Olympian's �indset APPiied 297

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(21 ) (S&P) Thurs. 3 :05pm DJIA last: 4233 S&P last: 508.00

..

(FLAT) That's the first target... I don't want to be long until 509 1 OOo/o cancel stops.

20- 1 <4 : 00

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selling

Observations: The trading session continues but the posi tion is entirely unwound when scaling back would have been more appropriate. This is fatigue showing itself as a factor again. However, by going flat there is a better chance of selling into the market's high preceding a much larger decline to 505. 1 5 as referenced in chart [20].

AERODYNAMIC TRADING 298 -i. 1 '..;.;i :•� A

--:..: 11�1'15

_ _ _ _ _ _ _ _ _

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50700

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50600

- - 50125- sofao- - 5oizs - - 5ofao- - soi2s - - sofao - - soi2s - - sofzo - - - - .

50735

•

-

50740

120- 1 3 : 00

(22) [S&P) Thurs.

50735

50730

50735

50720

50740

120- 1 4 : 00

50730�

3 : 24pm DJIA last: 4242 June S&P last: 508.70

(SHORn Selling 50°/o at current levels with a 509 .80 stop. Expiration activity could top this market. . . my daily indicators are kicking up to the underside of extremely bearish patterns.

Observations: The market just narrowly misses the 509 ob jective. An error is made as I 00% is not sold into this target area.

Part V: The Olympian 's .M.indset Applied 299 ·; : 4e

AXl'IS

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. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50600 .

.

· "'

- - 50720 - - so725- - 56720 - - sofas- - soi3� - - sofas- - sofao- - 5o72s- - so73o - - �ofa� - - �01..0 - - 50740

I

SOi35

50730

l20-t 3 : QO

[23] [S&P)

50735

50720

50740

120- 1 4 : 00

50730�

120- 15 : 00

Thurs. 3 :30pm DJIA last: 4240 June S&P last: 508.20

(SHORT) The decline does not look corrective ... selling another 50%... same stop ... at 509.80.

Observations: The additional 50% is sold. The timing for establishing this leg is incorrect. I find impatience usually ac companies fatigue. Had the market not been near its close, additional judgment errors would have once again developed as the cycle repeats itself.

This trading session netted a realized gain of +5.75 S&P points, with an unrealized gain on the open position of+ I . I S .


PART VI Conclusion: Why Struggle for the Top if it Can On ly be Temporary ?


Part VI:

Conclusion lOJ

As we have seen, our greatest market challenge is not out there in the external world, but within us. These inner hurdles generate most of the obstacles and difficulties we encounter. Be patient with who you are right now, but promise yourself to work tirelessly to illuminate those saboteurs working against you. They are sneaky, beware. They hide and disguise them selves as "lack of initiative" or "low motivation." Our trickster minds and Conscious Self will demand a logical reason for step ping out into the unknown. Perhaps I should say stepping in ward to the unknown? When I failed to make the Olympic team, the most common question I was asked then and still today is, "Was it all worth it?" It took time and maturity, but in the end, the answer is a resounding "YES ! " True, I did not reach my intended goal, my original destination. However, thejourney through many wind ing trails and dark open pits uncovered a strength of character and abilities that might otherwise have gone unknown. With out these challenges we would not become any stronger or wiser. Looking back, it was these small steps into the unknown that became the most clearly defined and detailed memories. It is certainly worth it, if only to stand fleetingly on a top pedestal and then move on ahead to a new challenge as someone else moves into the spotlight. At the end of the day, it is the journey you must relish and not the destination. The following inscription, given to me by a fonncr coach and tucked safely away in a fine old bent wood box, puts it all into perspective. This is the definitive answer to the question, "Is it worth it?"


You cannot stay on the summit forever; you have to come down again. So why bother in the first place ? Because what is below does not know what is above, but what is above knows what is below. One climbs, one sees. One descends, one sees no longer, but one has seen. There is an art of conducting oneself in the lower regions by memory of what one saw higher up. When one can no longer see, one can at least know.

-Source Unknown

Aerodynamic Trading, Constance M Brown 1995 OCR

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